Corporation Tax Act 2010

[F1 Calculating profits of trade U.K.

Textual Amendments

F1 Pt. 8A inserted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 1(1)

357CG Adjustments in calculating profits of trade U.K.

(1) This section applies for the purposes of determining [F3 under section 357C] the relevant IP profits of a trade of a company for an accounting period.

(2) In calculating the profits of the trade for the accounting period—

(a) there are to be added the amounts in subsection (3), and

(b) there are to be deducted the amounts in subsection (4).

(3) The amounts to be added are—

(a) the amount of any debits which are treated as expenses of the trade by virtue of—

(i) section 297 of CTA 2009 (debits in respect of loan relationships), or

(ii) section 573 of CTA 2009 (debits in respect of derivative contracts), F4 ...

(b) the amount of any additional deduction for the accounting period obtained by the company under Part 13 of CTA 2009 for expenditure on research and development in relation to the trade.

[F5 (c) the amount of any additional deduction for the accounting period obtained by the company under Part 15A of CTA 2009 in respect of qualifying expenditure on a television programme, F6 ...

(d) the amount of any additional deduction for the accounting period obtained by the company under Part 15B of CTA 2009 in respect of qualifying expenditure on a video game] [F7 , and

(e) the amount of any additional deduction for the accounting period obtained by the company under Part 15C of CTA 2009 in respect of qualifying expenditure on a theatrical production.]

(4) The amounts to be deducted are [F8 —

(a) the amount of any R&D expenditure credits (within the meaning of [F9 Chapter 1A of Part 13]) brought into account in calculating the profits of the trade for the accounting period, and]

[F10 (aa) the amount of any audiovisual expenditure credit or video game expenditure credit under Part 14A of CTA 2009 brought into account in calculating the profits of the trade for the accounting period,]

(b) any amounts of finance income brought into account in calculating the profits of the trade for the accounting period.

(For the meaning of “finance income”, see [F11 section 357BG].)

(5) In a case where there is a shortfall in R&D expenditure in relation to the trade for a relevant accounting period (see section 357CH), the amount of R&D expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CH(2).

[F12 (5A) In a case where—

(a) the company is—

(i) a television production company in relation to a television programme, or

(ii) a video games development company in relation to a video game, and

(b) there is a shortfall in qualifying expenditure in relation to the separate programme trade or (as the case may be) the separate video game trade for a relevant accounting period (see section 357CHA),

the amount of qualifying expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CHA(2).]

(6) For the purposes of [F13 subsections (5) and (5A)] —

• [F14 “qualifying expenditure”—

• (a)

  in relation to a company that is a television production company, has the same meaning as in Chapter 3 of Part 15A of CTA 2009, F15 ...

  (b)

  in relation to a company that is a video games development company, has the same meaning as in Chapter 3 of Part 15B of that Act] [F16 , and

  (c)

  in relation to a company that is the production company (as defined in section 1217FC of that Act) in relation to a theatrical production, has the same meaning as in Part 15C of that Act,]

• “R&D expenditure” means expenditure on research and development in relation to the trade,

• “relevant accounting period”, in relation to a company, means—

  (a)

  the first accounting period for which—

  (i)

  the company is a qualifying company, and

  (ii)

  an election under [F17 section 357A(1)] has effect in relation to it, and

  (b)

  each accounting period that begins before the end of the period of 4 years beginning with that accounting period, F18 ...

• “research and development” means activities, other than oil and gas exploration and appraisal, that fall to be treated as research and development in accordance with generally accepted accounting practice.

• [F19 “the separate programme trade”, in relation to a television production company, has the same meaning as in Chapter 2 of Part 15A of CTA 2009 (see section 1216B),

• “the separate video game trade”, in relation to a video games development company, has the same meaning as in Chapter 2 of Part 15B of CTA 2009 (see section 1217B),

• “television production company” has the same meaning as in Part 15A of CTA 2009 (see section 1216AE), F20 ...

• [F21 “theatrical production” has the same meaning as in Part 15C of CTA 2009 (see section 1217FA of that Act), and]

• “video games development company” has the same meaning as in Part 15B of CTA 2009 (see section 1217AB).]

Textual Amendments

F3 Words in s. 357CG(1) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 9 para. 7(2)

F4 Word in s. 357CG(3)(a) omitted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 18 paras. 18(2), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F5 S. 357CG(3)(c)(d) inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 18(2), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F6 Word in s. 357CG(3)(c) omitted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 4 paras. 15(2), 16; S.I. 2014/2228, art. 2

F7 S. 357CG(3)(e) and word inserted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by Finance Act 2014 (c. 26), Sch. 4 paras. 15(2), 16; S.I. 2014/2228, art. 2

F8 Words in s. 357CG(4) inserted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 10(a)

F9 Words in s. 357CG(4)(a) substituted (1.4.2024 with effect in relation to accounting periods beginning on or after that date) by Finance Act 2024 (c. 3), Sch. 1 paras. 13(3)(c), 16; S.I. 2024/286, reg. 2

F10 S. 357CG(4)(aa) inserted (22.2.2024) by Finance Act 2024 (c. 3), Sch. 2 para. 6(3)(b) (with Sch. 2 paras. 16(1), 17-25)

F11 Words in s. 357CG(4) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 9 para. 7(3)

F12 S. 357CG(5A) inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 18(3), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F13 Words in s. 357CG(6) substituted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 18(4)(a), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F14 Words in s. 357CG(6) inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 18(4)(b), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F15 Word in s. 357CG(6) omitted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 4 paras. 15(3)(a), 16; S.I. 2014/2228, art. 2

F16 Words in s. 357CG(6) inserted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by Finance Act 2014 (c. 26), Sch. 4 paras. 15(3)(a), 16; S.I. 2014/2228, art. 2

F17 Words in s. 357CG(6) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 9 para. 7(4)

F18 Word in s. 357CG(6) omitted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 18 paras. 18(4)(c), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F19 Words in s. 357CG(6) inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 18(4)(d), 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F20 Word in s. 357CG(6) omitted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 4 paras. 15(3)(b), 16; S.I. 2014/2228, art. 2

F21 Words in s. 357CG(6) inserted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by Finance Act 2014 (c. 26), Sch. 4 paras. 15(3)(b), 16; S.I. 2014/2228, art. 2

357CH Shortfall in R&D expenditure U.K.

(1) There is a shortfall in R&D expenditure in relation to a trade of a company for a relevant accounting period if the actual R&D expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of R&D expenditure.

(2) The amount that is to be added to the actual R&D expenditure for the purposes of section 357CG(5) is an amount equal to the difference between—

(a) 75% of the average amount of R&D expenditure, and

(b) the actual R&D expenditure, as adjusted under subsections (8) to (11).

(3) In this section—

(a) the “actual R&D expenditure” of a trade of a company for an accounting period is the amount of R&D expenditure that (ignoring section 357CG(5)) is brought into account in calculating the profits of the trade for the accounting period, and

(b) “R&D expenditure” and “relevant accounting period” have the meaning given by section 357CG(6).

(4) The average amount of R&D expenditure is—

where—

E is the amount of R&D expenditure that—

(a)

has been incurred by the company during the relevant period, and

(b)

has been brought into account in calculating the profits of the trade for any accounting period ending before the first relevant accounting period, and

N is the number of days in the relevant period.

(5) The relevant period is the shorter of—

(a) the period of 4 years ending immediately before the first relevant accounting period, and

(b) the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period.

(6) For a relevant accounting period of less than 12 months, the average amount of R&D expenditure is proportionately reduced.

(7) Subsections (8) to (11) apply for the purposes of determining—

(a) whether there is a shortfall in R&D expenditure for a relevant accounting period, and

(b) if there is such a shortfall, the amount to be added by virtue of subsection (2).

(8) If the amount of the actual R&D expenditure for a relevant accounting period is greater than the average amount of R&D expenditure, the difference between the two amounts is to be added to the actual R&D expenditure for the next relevant accounting period.

(9) If—

(a) there is not a shortfall in R&D expenditure for a relevant accounting period, but

(b) in the absence of any additional amount, there would be a shortfall in R&D expenditure for that accounting period,

the remaining portion of the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period.

(10) For the purposes of this section—

• “additional amount”, in relation to a relevant accounting period, means any amount added to the actual R&D expenditure for that accounting period by virtue of subsection (8), (9) or (11), and

• “the remaining portion” of an additional amount is so much of that amount as exceeds the difference between—

  (a)

  the actual R&D expenditure for the relevant accounting period in the absence of the additional amount, and

  (b)

  75% of the average amount of R&D expenditure.

(11) If—

(a) there is not a shortfall in R&D expenditure for a relevant accounting period, and

(b) there would not be a shortfall in R&D expenditure for that accounting period in the absence of any additional amount,

the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)).

[F22 357CHA Shortfall in qualifying expenditure U.K.

(1) There is a shortfall in qualifying expenditure in relation to the separate programme trade of a television production company or (as the case may be) the separate video game trade of a video games development company for a relevant accounting period if the actual qualifying expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of qualifying expenditure.

(2) The amount that is to be added to the actual qualifying expenditure for the purposes of section 357CG(5A) is an amount equal to the difference between—

(a) 75% of the average amount of qualifying expenditure, and

(b) the actual qualifying expenditure, as adjusted under subsections (8) to (11).

(3) In this section—

(a) the “actual qualifying expenditure” of a trade of a company for an accounting period is the amount of qualifying expenditure that (ignoring section 357CG(5A)) is brought into account in calculating the profits of the trade for the accounting period, and

(b) the following terms have the meaning given by section 357CG(6)—

• “qualifying expenditure”,

• “relevant accounting period”,

• “the separate programme trade”,

• “the separate video game trade”,

• “television production company”,

• “video games development company”.

(4) The average amount of qualifying expenditure is—

where—

E is the amount of qualifying expenditure that—

(a)

has been incurred by the company during the relevant period, and

(b)

has been brought into account in calculating the profits of the trade for any accounting period ending before the first relevant accounting period, and

N is the number of days in the relevant period.

(5) The relevant period is the shorter of—

(a) the period of 4 years ending immediately before the first relevant accounting period, and

(b) the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period.

(6) For a relevant accounting period of less than 12 months, the average amount of qualifying expenditure is proportionately reduced.

(7) Subsections (8) to (11) apply for the purposes of determining—

(a) whether there is a shortfall in qualifying expenditure for a relevant accounting period, and

(b) if there is such a shortfall, the amount to be added by virtue of subsection (2).

(8) If the amount of the actual qualifying expenditure for a relevant accounting period is greater than the average amount of qualifying expenditure, the difference between the two amounts is to be added to the actual qualifying expenditure for the next relevant accounting period.

(9) If—

(a) there is not a shortfall in qualifying expenditure for a relevant accounting period, but

(b) in the absence of any additional amount, there would be a shortfall in qualifying expenditure for that accounting period,

the remaining portion of the additional amount is to be added to the actual qualifying expenditure for the next relevant accounting period.

(10) For the purposes of this section—

• “additional amount”, in relation to a relevant accounting period, means any amount added to the actual qualifying expenditure for that accounting period by virtue of subsection (8), (9) or (11), and

• “the remaining portion” of an additional amount is so much of that amount as exceeds the difference between—

  (a)

  the actual qualifying expenditure for the relevant accounting period in the absence of the additional amount, and

  (b)

  75% of the average amount of qualifying expenditure.

(11) If—

(a) there is not a shortfall in qualifying expenditure for a relevant accounting period, and

(b) there would not be a shortfall in qualifying expenditure for that accounting period in the absence of any additional amount,

the additional amount is to be added to the actual qualifying expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)).]]

Textual Amendments

F22 S. 357CHA inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 19, 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)