Finance Act 2000 (c. 17)

SCHEDULES

SCHEDULE 20 U.K. Tax relief for expenditure on research and development

Modifications etc. (not altering text)

C1 Sch. 20 restricted (22.4.2003) by Finance Act 2002 (c. 23), Sch. 13 para. 17(2); S.I. 2003/1472, art. 2

C2 Sch. 20 modified (1.1.2005 with effect as specified in art. 2 of the commencing S.I.) by Finance Act 2004 (c. 12), s. 53(2)(6); S.I. 2004/3268, art. 2

Part I U.K. Entitlement to relief

Entitlement to R&D tax relief U.K.

1 (1) A company is entitled to R&D tax relief for an accounting period if— U.K.

(a) the company qualifies as a small or medium-sized enterprise in the period (see paragraph 2), and

(b) [F1 the aggregate of its qualifying R&D expenditure (see [F2 paragraph 3),] its qualifying sub-contracted R&D expenditure (within the meaning of paragraph 8 of Schedule 12 to the Finance Act 2002) [F3 and its qualifying additional SME expenditure (as defined in paragraph 10B of that Schedule)] deductible in that period is not less than]—

(i) [F4 £10,000], if the accounting period is a period of 12 months, or

(ii) such amount as bears to [F5 £10,000] the same proportion as the accounting period bears to 12 months.

(2) For the purposes of sub-paragraph (1) a company’s qualifying R&D expenditure is deductible in an accounting period if—

(a) it is allowable as a deduction in computing for tax purposes the profits for that period of a trade carried on by the company, or

(b) it would have been allowable as such a deduction had the company, at the time the expenditure was incurred, been carrying on a trade consisting of the activities in respect of which it was incurred.

(3) For the purposes of sub-paragraph (2)(a) no account shall be taken of section 401 of the Taxes Act 1988 (pre-trading expenditure treated as incurred when trading begins).

[F6 (3A) For the purposes of sub-paragraph (1)(b)[F7 , each of the following—

(a)] a company’s qualifying sub-contracted R&D expenditure (within the meaning of paragraph 8 of Schedule 12 to the Finance Act 2002)[F8 , and]

[F9 (b) a company’s qualifying additional SME expenditure (as defined in paragraph 10B of that Schedule),]

is deductible in an accounting period if it is allowable as a deduction in computing for tax purposes the profits for that period of a trade carried on by the company.]

(4) In relation to an accounting period beginning before and ending on or after 1st April 2000, the references in sub-paragraph (1)(b)(i) and (ii) to the accounting period shall be read as references to so much of it as falls on or after that date.

Textual Amendments

F1 Words in Sch. 20 para. 1(1)(b) substituted (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 2(1)(a) (with Sch. 15 para. 1(2))

F2 Words in Sch. 20 para. 1(1)(b) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(2)(a)

F3 Words in Sch. 20 para. 1(1)(b) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(2)(b)

F4 Word in Sch. 20 para. 1(1)(b)(i) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 2(2)

F5 Word in Sch. 20 para. 1(1)(b)(ii) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 2(2)

F6 Sch. 20 para. 1(3A) inserted (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 2(1)(b) (with Sch. 15 para. 2(2))

F7 Word in Sch. 20 para. 1(3A) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(a)

F8 Word in Sch. 20 para. 1(3A) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(b)

F9 Sch. 20 para. 1(3A)(b) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(c)

Meaning of “small or medium-sized enterprise". U.K.

2 (1) For the purposes of this Schedule a “small or medium-sized enterprise” means [F10 a micro, small or medium-sized enterprise as defined in Commission Recommendation 2003/361/EC of 6th May 2003 (“the Recommendation”, references to the Annex being references to the Annex to the Recommendation), subject to the following qualifications. U.K.

• Qualification 1

  If a company (“C”) is a micro, small or medium-sized enterprise, disregarding any partner enterprise or linked enterprise, and, taken alone, it would satisfy the employee limit and at least one of the financial limits, but—

  (a)

  the number of employees, annual turnover or annual balance sheet total (as the case may be) of a partner enterprise or linked enterprise to which it is related has been taken into account in determining whether the employee limit or the financial limits have been exceeded, and

  (b)

  a partner enterprise or linked enterprise to which C is related would, disregarding the number of employees, and the annual turnover and annual balance sheet totals of C, exceed the employee limit, or [F11 both] of the financial limits,

  Article 4(2) of the Annex shall be disregarded in determining whether C is a small or medium-sized enterprise for an accounting period in which it exceeds the employee or financial limits.

  Here references to the employee limit and the financial limits are to the limits respectively on the number of employees, and the annual turnover and balance sheet totals, contained in Article 2(1) of the Annex.

• Qualification 2

  In relation to the first accounting period of an enterprise which ends on or after 1st January 2005, for the purpose of determining whether the enterprise is a small or medium-sized enterprise (see Article 4(2) of the Annex), the Recommendation shall be treated as applying to the immediately preceding accounting period.]

(2) The Treasury may by order amend sub-paragraph (1) so as to substitute another definition of “small or medium-sized enterprise" for the definition that is for the time being effective for the purposes of this Schedule.

Textual Amendments

F10 Words in Sch. 20 para. 2(1) substituted (1.1.2005) (with effect in accordance with art. 1 of the amending S.I.) by Finance Act 2000, Schedule 20 (Definition of Small or Medium-Sized Enterprise) Order 2004 (S.I. 2004/3267), arts. 1, 2

F11 Word in Sch. 20 para. 2(1) substituted (31.12.2005) (with effect in accordance with art. 1(2) of the amending S.I.) by Research and Development Tax Relief (Definition of "Small or Medium-Sized Enterprise") Order 2005 (S.I. 2005/3376), arts. 1(1), 2

Modifications etc. (not altering text)

C3 Sch. 20 para. 2 applied (with modifications) (22.4.2003) by Finance Act 2002 (c. 23), Sch. 13 para. 5(3)(a); S.I. 2003/1472, art. 2

Qualifying R&D expenditure U.K.

3 (1) For the purposes of this Schedule “qualifying R&D expenditure” of a company means expenditure that meets the following conditions. U.K.

(2) The first condition is that the expenditure is not of a capital nature.

(3) The second condition is that the expenditure is attributable to relevant research and development (see paragraph 4) directly undertaken by the company or on its behalf.

[F12 (4) The third condition is that the expenditure—

(a) is incurred on staffing costs (see paragraph 5),

(b) is incurred on [F13 software or consumable items] (see paragraph 6),

(c) is qualifying expenditure on externally provided workers (see paragraphs 8A to 8E), or

(d) is qualifying expenditure on sub-contracted research and development (see paragraphs 9 to 12).]

(5) The fourth condition is that any intellectual property (see paragraph 7) created as a result of the research and development to which the expenditure is attributable is, or will be, vested in the company (whether alone or with other persons).

(6) The fifth condition is that the expenditure is not incurred by the company in carrying on activities the carrying on of which is contracted out to the company by any person.

(7) The sixth condition is that the expenditure is not subsidised (see paragraph 8).

Textual Amendments

F12 Sch. 20 para. 3(4) substituted (10.7.2003) (with effect in accordance with s. 168(3)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 4

F13 Words in Sch. 20 substituted (1.4.2005) (with effect in accordance with s. 141(3)-(7) of the amending Act) by Finance Act 2004 (c. 12), s. 141(2)(a); S.I. 2005/123, art. 2

Relevant research and development U.K.

4 (1) For the purposes of this Schedule “relevant research and development”, in relation to a company, means research and development— U.K.

(a) related to a trade carried on by the company, or

(b) from which it is intended that a trade to be carried on by the company will be derived.

(2) For the purposes of this Schedule research and development related to a trade carried on by the company includes—

(a) research and development which may lead to or facilitate an extension of that trade, and

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in that trade.

Modifications etc. (not altering text)

C4 Sch. 20 para. 4 applied (24.7.2002 with effect as mentioned in s. 53(1) of the amending Act) by 2002 c. 23, s. 53, Sch. 12 para. 17(a)

Staffing costs U.K.

5 (1) For the purposes of this Schedule the staffing costs of a company are— U.K.

[F14 (a) the emoluments paid by the company to directors or employees of the company, including all salaries, wages, perquisites and profits whatsoever other than benefits in kind;]

(b) the secondary Class 1 national insurance contributions paid by the company;

[F15 (ba) the compulsory contributions paid by the company in respect of benefits for directors or employees of the company under the social security legislation of an EEA State (other than the United Kingdom) or Switzerland;] and

(c) the contributions paid by the company to any pension fund F16 . . . operated for the benefit of directors or employees of the company.

F17 (1ZA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F18 (1ZB) In sub-paragraph (1)(ba) “social security legislation” means legislation relating to any of the branches of social security listed in Article 3(1) of Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the co-ordination of social security systems (as amended from time to time).]

[F19 (1A) In sub-paragraph (1)(c) “pension fund” means any scheme, fund or other arrangements established and maintained (whether in the United Kingdom or elsewhere) for the purpose of providing pensions, retirement annuities, allowances, lump sums, gratuities or other superannuation benefits (with or without subsidiary benefits).

In this sub-paragraph “scheme” includes any deed, agreement or series of agreements.]

(2) The staffing costs of a company attributable to relevant research and development are those paid to, or in respect of, directors or employees directly and actively engaged in such research and development.

(3) In the case of a director or employee partly engaged directly and actively in relevant research and development F20 ... —

F21 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) F22 ... an appropriate proportion of the staffing costs relating to him are treated as attributable to relevant research and development.

(4) For the purpose of sub-paragraphs (2) and (3) persons who provide services, such as secretarial or administrative services, in support of activities carried on by others, are not, by virtue of providing those services, to be treated as themselves directly and actively engaged in those activities.

Textual Amendments

F14 Sch. 20 para. 5(1)(a) substituted (22.7.2004) (with effect in accordance with Sch. 17 para. 7(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 17 para. 7(1)(a)

F15 Sch. 20 para. 5(1)(ba) inserted (with effect in accordance with s. 27(10) of the amending Act) by Finance Act 2008 (c. 9), s. 27(2)

F16 Words in Sch. 20 para. 5(1)(c) repealed (24.7.2002 with effect as mentioned in the note under Sch. 40 Pt. 3(5) of the amending Act) by 2002 c. 23, ss. 56, 141, Sch. 15 para. 3(a), Sch. 40 Pt. 3(5) Note

F17 Sch. 20 para. 5(1ZA) repealed (22.7.2004) (with effect in accordance with Sch. 17 para. 7(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 17 para. 7(1)(b), Sch. 42 Pt. 2(12)

F18 Sch. 20 para. 5(1ZB) inserted (with effect in accordance with s. 27(10) of the amending Act) by Finance Act 2008 (c. 9), s. 27(3)

F19 Sch. 20 para. 5(1A) inserted (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 3(b)

F20 Words in Sch. 20 para. 5(3) repealed (10.7.2003) (with effect in accordance with s. 168(4)(b) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 5(2), Sch. 43 Pt. 3(10)

F21 Sch. 20 para. 5(3)(a) (b) repealed (10.7.2003) (with effect in accordance with s. 168(4)(b) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 5(3), Sch. 43 Pt. 3(10)

F22 Words in Sch. 20 para. 5(3)(c) repealed (10.7.2003) (with effect in accordance with s. 168(4)(b) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 5(4), Sch. 43 Pt. 3(10)

Modifications etc. (not altering text)

C5 Sch. 20 para. 5 applied (24.7.2002 with effect as mentioned in s. 53(1) of the amending Act) by 2002 c. 23, s. 53, Sch. 12 para. 17(b)

C6 Sch. 20 para. 5 applied (with modifications) (22.4.2003) by Finance Act 2002 (c. 23), Sch. 13 para. 5(3)(b); S.I. 2003/1472, art. 2

[F23 Expenditure on software or consumable items U.K.

Textual Amendments

F23 Sch. 20 para. 6 and cross-heading substituted (1.4.2005) (with effect in accordance with s. 141(3)-(7) of the amending Act) by Finance Act 2004 (c. 12), s. 141(1); S.I. 2005/123, art. 2

6 (1) For the purposes of this Schedule expenditure on software or consumable items means expenditure on— U.K.

(a) computer software, or

(b) consumable or transformable materials,

and references to software or consumable items shall be construed accordingly.

(2) For the purposes of this Schedule consumable or transformable materials include water, fuel and power.

(3) Expenditure on software or consumable items is attributable to relevant research and development if the software or consumable items are employed directly in such research and development.

(4) In the case of software or consumable items partly employed directly in relevant research and development, an appropriate portion of the expenditure on the software or consumable items is treated as attributable to relevant research and development.

(5) For the purposes of sub-paragraphs (3) and (4), software or consumable items employed in the provision of services, such as secretarial or administrative services, in support of other activities are not, by virtue of their employment in the provision of those services, to be treated as themselves directly employed in those other activities.]

Modifications etc. (not altering text)

C7 Sch. 20 para. 6 applied (24.7.2002 with effect as mentioned in s. 53(1) of the amending Act) by 2002 c. 23, s. 53, Sch. 12 para. 17(c)

C8 Sch. 20 para. 6 applied (with modifications) (22.4.2003) by Finance Act 2002 (c. 23), Sch. 13 para. 5(3)(c); S.I. 2003/1472, art. 2

[F24 Relevant payments to subjects of clinical trials U.K.

Textual Amendments

F24 Sch. 20 para. 6A and cross-heading inserted (1.4.2006 for specified purposes, 1.8.2008 in so far as not already in force) by Finance Act 2006 (c. 25), s. 28(3)-(6), Sch. 2 para. 1(3); S.I. 2008/1878, art. 2

6A (1) For the purposes of this Schedule “relevant payment”, in relation to a subject of a clinical trial, means a payment made to him for participating in the trial. U.K.

(2) For the purposes of this Schedule “clinical trial” means an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure.]

Meaning of “intellectual property" U.K.

7 U.K. In this Schedule “intellectual property” means—

(a) any industrial information or techniques likely to assist in—

(i) the manufacture or processing of goods or materials, or

(ii) the working of a mine, oil well or other source of mineral deposits or the winning of access thereto, or

(iii) the carrying out of any agricultural, forestry or fishing operations;

(b) any patent, trade mark, registered design, copyright, design right or plant breeder’s right; and

(c) any rights under the law of a country outside the United Kingdom which correspond or are similar to those falling within paragraph (b).

Subsidised expenditure U.K.

8 (1) For the purposes of this Schedule a company’s expenditure is treated as subsidised— U.K.

(a) if a notified State aid is, or has been, obtained in respect of—

(i) the whole or part of the expenditure, or

(ii) any other expenditure (whenever incurred) attributable to the same research and development project;

(b) to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure;

(c) to the extent that it is otherwise met directly or indirectly by any person other than the company.

(2) For the purposes of sub-paragraph (1) “notified State aid” means a State aid notified to and approved by the European Commission.

[F25 For this purpose the following are not State aids—

(a) R&D tax relief and R&D tax credits;

(b) tax relief under Schedule 12 to the Finance Act 2002 (tax relief for expenditure on research and development);

(c) tax relief and tax credits under Schedule 13 to that Act (tax relief for expenditure on vaccine research etc).]

(3) For the purposes of this Schedule a notified State aid, grant, subsidy or payment that is not allocated to particular expenditure shall be allocated to expenditure of the recipient in such manner as is just and reasonable.

Textual Amendments

F25 Sch. 20 para. 8: words and sub-sub-paras. (a)-(c) substituted for words in Sch. 20 para. 8(2) (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 4

Modifications etc. (not altering text)

C9 Sch. 20 para. 8 applied (with modifications) (22.4.2003) by Finance Act 2002 (c. 23), Sch. 13 para. 5(3)(d); S.I. 2003/1472, art. 2

[F26 Qualifying expenditure on externally provided workers U.K.

Textual Amendments

F26 Sch. 20 paras. 8A-8E and cross-headings inserted (10.7.2003) (with effect in accordance with s. 168(4)(c) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 6

8A (1) The provisions of paragraphs 8C to 8E have effect for determining the amount of the qualifying expenditure of a company (“the company”) on externally provided workers. U.K.

(2) The provisions of sub-paragraphs (4) to (6) have effect for determining how much of any such expenditure is attributable to relevant research and development.

(3) For the purposes of this Schedule the company incurs expenditure on externally provided workers if it makes a payment (a “staff provision payment”) to another person (the “staff provider”) in respect of the supply to the company, by or through the staff provider, of the services of any externally provided workers.

(4) Qualifying expenditure on externally provided workers is attributable to relevant research and development if the externally provided workers are directly and actively engaged in such research and development.

(5) In the case of any externally provided worker partly engaged directly and actively in relevant research and development, an appropriate proportion of the qualifying expenditure relating to him is treated as attributable to the relevant research and development.

(6) For the purposes of sub-paragraphs (4) and (5) persons who provide services, such as secretarial or administrative services, in support of activities carried on by others, are not, by virtue of providing those services, to be treated as themselves directly and actively engaged in those activities.

Meaning of “externally provided worker” U.K.

8B U.K. For the purposes of this Schedule a person is an “externally provided worker” in relation to the company if the following conditions are satisfied—

(a) he is an individual,

(b) he is not a director or employee of the company,

(c) he personally provides, or is under an obligation personally to provide, services to the company,

(d) he is subject to (or to the right of) supervision, direction or control by the company as to the manner in which those services are provided,

(e) his services are supplied to the company by or through the staff provider (whether or not he is a director or employee of the staff provider or of any other person),

(f) he provides, or is under an obligation to provide, those services personally to the company under the terms of a contract between him and the staff provider,

(g) the provision of those services does not constitute the carrying on of activities contracted out by the company.

Treatment of expenditure where company and staff provider are connected persons U.K.

8C (1) Where— U.K.

(a) the company and the staff provider are connected persons, and

(b) in accordance with generally accepted accounting practice—

(i) the whole of the staff provision payment has been brought into account in determining the staff provider’s profit or loss for a relevant period, and

(ii) all of the staff provider’s relevant expenditure has been so brought into account,

the whole of the payment (up to the amount of the staff provider’s relevant expenditure) is qualifying expenditure on externally provided workers.

(2) In sub-paragraph (1)—

(a) references to the “relevant expenditure” of the staff provider are to expenditure that—

(i) is incurred by the staff provider in providing for the company the externally provided workers to which the staff provision payment relates,

(ii) is not of a capital nature, and

(iii) is incurred on staffing costs or agency workers' remuneration;

(b) a “relevant period” means a period—

(i) for which accounts are drawn up for the staff provider, and

(ii) that ends not more than twelve months after the end of the company’s period of account in which the staff provision payment is, in accordance with generally accepted accounting practice, brought into account in determining the company’s profit or loss.

(3) Paragraph 5 (staffing costs) applies for the purposes of determining whether the staff provider’s expenditure meets the requirements of sub-paragraph (2)(a)(iii) so far as relating to staffing costs.

For this purpose the references in that paragraph to a company shall be read as references to the staff provider.

(4) For the purposes of this Schedule “agency workers' remuneration”, in the case of any person who is an externally provided worker in relation to the company, means remuneration receivable by the worker under or in consequence of the contract mentioned in paragraph 8B(f)—

(a) that does not constitute employment income of the worker apart from Chapter 7 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (application of provisions to agency workers), and

(b) that is not, apart from section 134 of the Taxes Act 1988 (workers supplied by agencies), chargeable to income tax under Schedule E.

(5) Any apportionment of expenditure of the company or the staff provider necessary for the purposes of this paragraph shall be made on a just and reasonable basis.

Election for connected persons treatment U.K.

8D (1) The company and the staff provider may in any case jointly elect that paragraph 8C shall apply to the staff provision payments made by the company to the staff provider. U.K.

(2) Any such election must be made in relation to all staff provision payments paid under the same contract or arrangement.

(3) The election must be made by notice in writing given to the Inland Revenue.

(4) The notice must be given before the end of the period of two years beginning with the end of the company’s accounting period in which the contract or other arrangement is entered into.

(5) An election under this paragraph, once made, is irrevocable.

Treatment of staff provision payment in other cases U.K.

8E U.K. Where—

(a) the company makes a staff provision payment,

(b) the company and the staff provider are not connected persons, and

(c) no election is made under paragraph 8D,

65% of the amount of the staff provision payment is treated as qualifying expenditure on externally provided workers.]

Qualifying expenditure on sub-contracted research and development U.K.

9 (1) The provisions of paragraphs 10 to 12 have effect for determining the amount of the qualifying expenditure of a company (“the company”) on sub-contracted research and development. U.K.

(2) For the purposes of this Schedule the company incurs expenditure on sub-contracted research and development if it makes a payment (a “sub-contractor payment”) to another person (“the sub-contractor”) in respect of relevant research and development contracted out by the company to that person.

Treatment of expenditure where company and sub-contractor are connected persons U.K.

10 (1) Where— U.K.

(a) the company and the sub-contractor are connected persons, and

(b) in accordance with [F27 generally accepted accounting practice]—

(i) the whole of the sub-contractor payment has been brought into account in determining the sub-contractor’s profit or loss for a relevant period, and

(ii) all of the sub-contractor’s relevant expenditure has been so brought into account,

the whole of the payment (up to the amount of the sub-contractor’s relevant expenditure) is qualifying expenditure on sub-contracted research and development.

(2) In sub-paragraph (1)—

(a) references to the “relevant expenditure" of the sub-contractor are to expenditure that—

(i) is incurred by the sub-contractor in carrying on, on behalf of the company, the activities to which the sub-contractor payment relates,

(ii) is not of a capital nature,

(iii) is incurred on staffing costs or on [F13 software or consumable items] [F28 or is qualifying expenditure on externally provided workers], and

(iv) is not subsidised;

(b) a “relevant period” means a period

(i) for which accounts are drawn up for the sub-contractor, and

(ii) that ends not more than twelve months after the end of the company’s period of account in which the sub-contractor payment is, in accordance with [F29 generally accepted accounting practice], brought into account in determining the company’s profit or loss.

[F30 (3) For the purpose of determining whether the sub-contractor’s expenditure meets the requirements of sub-paragraph (2)(a)(iii) and (iv), the following provisions apply—

(a) paragraph 5 (staffing costs),

(b) paragraph 8 (subsidised expenditure), and

(c) paragraphs 8A to 8E (qualifying expenditure on externally provided workers),

but for that purpose the references in those paragraphs to a company shall be read as references to the sub-contractor.]

(4) Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this paragraph shall be made on a just and reasonable basis.

Textual Amendments

F13 Words in Sch. 20 substituted (1.4.2005) (with effect in accordance with s. 141(3)-(7) of the amending Act) by Finance Act 2004 (c. 12), s. 141(2)(a); S.I. 2005/123, art. 2

F27 Words in Sch.20 para.10(1)(b) substituted (24.7.2002) by 2002 c. 23, s. 103(4)(f)

F28 Words in Sch. 20 para. 10(2)(a)(iii) inserted (10.7.2003) (with effect in accordance with s. 168(3)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 7(2)

F29 Words in Sch. 20 para. 10(2)(b)(ii) substituted (24.7.2002) by 2002 c. 23, s. 103(4)(f)

F30 Sch. 20 para. 10(3) substituted (10.7.2003) (with effect in accordance with s. 168(3)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 7(3)

Election for connected persons treatment U.K.

11 (1) The company and the sub-contractor may in any case jointly elect that paragraph 10 shall apply to sub-contractor payments made by the company to the sub-contractor. U.K.

(2) Any such election must be made in relation to all sub-contractor payments paid under the same contract or other arrangement.

(3) The election must be made by notice in writing given to the Inland Revenue.

(4) The notice must be given before the end of the period of two years beginning with the end of the company’s accounting period in which the contract or other arrangement is entered into.

(5) An election under this paragraph, once made, is irrevocable.

Treatment of sub-contractor payment in other cases U.K.

12 U.K. Where—

(a) the company makes a sub-contractor payment, F31 . . .

[F32 (b) the company and the sub-contractor are not connected persons, and

(c) no election is made under paragraph 11,]

65% of the amount of the sub-contractor payment is treated as qualifying expenditure on sub-contracted research and development.

Textual Amendments

F31 Word in Sch. 20 para. 12(a) repealed (24.7.2002) by 2002 c. 23, s. 141, Sch. 40 Pt. 3(5) Note

F32 Sch. 20 para. 12(b)(c) substituted for para. 12(b) (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 5