SCHEDULE 20 Tax relief for expenditure on research and development
Part II Manner of giving effect to relief
Deduction in computing profits of trade
13
Where—
(a)
a company is entitled to R&D tax relief for an accounting period,
(b)
it is carrying on a trade in that period, and
(c)
it has qualifying R&D expenditure that is allowable as a deduction in computing for tax purposes the profits of the trade for that period,
Alternative treatment of pre-trading expenditure
14
(1)
This paragraph applies where a company—
(a)
is entitled to R&D tax relief for an accounting period, and
(b)
has incurred qualifying R&D expenditure in that accounting period which—
(i)
is not allowable as a deduction in computing, for tax purposes, the profits of a trade that was carried on by it at the time the expenditure was incurred, but
(ii)
would have been so allowable had the company, at that time, been carrying on a trade consisting of the activities in respect of which the expenditure was incurred.
(2)
(3)
Where an election is made under this paragraph in respect of the accounting period, section 401 of the Taxes Act 1988 (relief for pre-trading expenditure) does not apply to that qualifying R&D expenditure.
(4)
An election under this paragraph must specify the accounting period in respect of which it is made.
(5)
The election must be made by notice in writing to the Inland Revenue.
(6)
The notice must be given before the end of the period of two years beginning with the end of the company’s accounting period to which the election relates.
Entitlement to R&D tax credit
15
(1)
A company may claim an R&D tax credit for an accounting period in which it has a surrenderable loss F5(subject to paragraph 18A).
(2)
A company has a “surrenderable loss" for this purpose if in an accounting period—
(a)
paragraph 13 applies and the company incurs a trading loss in that period in the trade mentioned in sub-paragraph (1)(b) of that paragraph, or
(b)
paragraph 14 applies and the company is treated under that paragraph as incurring a trading loss.
(3)
The amount of the surrenderable loss is equal to—
(a)
so much of that trading loss as is unrelieved, or
(b)
if less, F6175% of the related qualifying R&D expenditure.
(4)
For this purpose the amount of a trading loss that is “unrelieved” means the amount of that loss reduced by the amount of—
(a)
any relief that was or could have been obtained by the company making a claim under section 393A(1)(a) of the Taxes Act 1988 to set the loss against profits of whatever description of the same accounting period,
(b)
any other relief obtained by the company in respect of the loss, including relief under section 393A(1)(b) F7or 393B(3) of that Act (losses set against profits of an earlier accounting period), and
(c)
any loss surrendered under section 403(1) (surrender of relief to group or consortium members) of that Act.
(5)
No account shall be taken for this purpose of any losses—
(a)
brought forward from an earlier accounting period under section 393(1) of the Taxes Act 1988, or
(b)
carried back from a later accounting period under section 393A(1)(b) F8or 393B(3) of that Act.
Amount of credit
16
(1)
The amount of the R&D tax credit to which a company is entitled for an accounting period is an amount equal to—
(a)
F914% of the amount of the surrenderable loss for the period, or
(b)
if less, the total amount of the company’s PAYE and NICs liabilities for payment periods ending in the accounting period.
(2)
The Treasury may by order substitute for the percentage for the time being specified in sub-paragraph (1)(a) such other percentage as they think fit.
(3)
An order under sub-paragraph (2) may make such incidental, supplemental, consequential and transitional provision as the Treasury think fit.
Total amount of company’s PAYE and NICs liabilities
17
(1)
For the purposes of paragraph 16 the total amount of the company’s PAYE and NICs liabilities for a payment period is the total of—
(a)
the amount of income tax for which the company is required to account to the Inland Revenue for that period under the PAYE regulations, disregarding any deduction the company is authorised to make in respect of F10child tax credit or working tax credit, and
(b)
the Class 1 national insurance contributions for which the company is required to account to the Inland Revenue for that period, disregarding any deduction the company is authorised to make in respect of payments of statutory sick pay, statutory maternity pay, F10child tax credit or working tax credit.
(2)
A “payment period” means a period which ends on the 5th day of a month and for which the company is liable to account for income tax and national insurance contributions to the Inland Revenue.
Payment in respect of R&D tax credit
18
(1)
Where—
(a)
the company is entitled to an R&D tax credit for an accounting period, and
(b)
makes a claim,
the Inland Revenue shall pay to the company the amount of the credit.
(2)
An amount payable in respect of—
(a)
an R&D tax credit, or
(b)
interest on an R&D tax credit under section 826 of the Taxes Act 1988,
may be applied in discharging any liability of the company’s to pay corporation tax, and to the extent that it is so applied the Inland Revenue’s obligation under sub-paragraph (1) is discharged.
(3)
Where the company’s company tax return for the accounting period is enquired into by the Inland Revenue, no payment in respect of an R&D tax credit for that period need be made before the Inland Revenue’s enquiries are completed (see paragraph 32 of Schedule 18 to the M1Finance Act 1998).
In those circumstances the Inland Revenue may make a payment on a provisional basis of such amount as they think fit.
(4)
No payment need be made in respect of an R&D tax credit for an accounting period before the company has paid to the Inland Revenue any amount that it is required to pay for payment periods ending in that accounting period—
(a)
under the PAYE regulations, or
(b)
in respect of Class 1 national insurance contributions.
F11(5)
This paragraph has effect subject to paragraph 18A.
F12R&D tax relief or tax credit only available where company is a going concern
18A
(1)
A company may only make—
(a)
a claim under paragraph 13,
(b)
an election under paragraph 14, or
(c)
a claim under paragraph 15,
at a time when it is a going concern.
(2)
If a company ceases to be a going concern after making a claim for an R&D tax credit under paragraph 15, it shall be treated as if it had not made the claim (and, accordingly, as if there had been no payment of R&D tax credit to carry interest under section 826 of the Taxes Act 1988).
(3)
Sub-paragraph (2) does not apply to the extent that the claim relates to an amount that was paid or applied before the company ceased to be a going concern.
(4)
For the purposes of this paragraph, a company is a going concern if—
(a)
its latest published accounts were prepared on a going concern basis, and
(b)
nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or tax credits under this Schedule or Schedule 13 to the Finance Act 2002.
(5)
Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this paragraph.
Restriction on losses carried forward
19
(1)
For the purposes of section 393 of the Taxes Act 1988 (relief of trading losses against future trading profits), a company’s trading loss for a period for which it claims an R&D tax credit is treated as reduced by the amount of the loss surrendered.
(2)
The amount of the loss surrendered is—
(a)
where the maximum amount of R&D tax credit was claimed, the whole of the surrenderable loss for that period;
(b)
where less than the maximum amount was claimed, a corresponding proportion of the surrenderable loss for that period.
The “maximum amount” here means the amount specified in paragraph 16(1)(a).
Payment in respect of R&D tax credit not income
20
A payment in respect of an R&D tax credit is not income of the company for any tax purposes.