SCHEDULES
C1SCHEDULE 12Tax relief for expenditure on research and development
Part 1Entitlement to relief for R&D expenditure: large companies
1Entitlement to relief under this Part
1
A company (in this Part referred to as “the company”) is entitled to tax relief under this Part for an accounting period if—
a
it is a large company throughout that period, and
2
For the purposes of this paragraph the company’s qualifying R&D expenditure is “for an accounting period” if it is deductible in computing for tax purposes the profits for that period of a trade carried on by the company (including expenditure that is so deductible by virtue of section 401 of the Taxes Act 1988).
2Meaning of “large company" and “small or medium-sized enterprise"
1
For the purposes of this Schedule—
a
“large company” means a company that does not qualify as a small or medium-sized enterprise; and
b
“small or medium-sized enterprise” F5has the meaning given by paragraph 2(1) of Schedule 20 to the Finance Act 2000.
2
The Treasury may by order amend sub-paragraph (1)(b) 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.
3Qualifying R&D expenditure
For the purposes of this Schedule the company’s “qualifying R&D expenditure” is—
a
its qualifying expenditure on direct research and development (see paragraph 4),
b
its qualifying expenditure on sub-contracted research and development (see paragraph 5), and
c
its qualifying expenditure on contributions to independent research and development (see paragraph 6).
4Qualifying expenditure on direct research and development
1
The company’s qualifying expenditure on direct research and development is expenditure incurred by it where the following conditions are satisfied.
2
The first condition is that the expenditure is incurred on research and development directly undertaken by the company.
F33
The second condition is that the expenditure—
a
is incurred on staffing costs,
b
is incurred on F4software or consumable items , or
c
is qualifying expenditure on externally provided workers.
4
The third condition is that the expenditure is attributable to relevant research and development in relation to the company.
5
The fourth condition is that the expenditure is not of a capital nature.
6
The fifth condition is that, if the expenditure is incurred in carrying on activities contracted out to the company, they are contracted out—
a
by a large company, or
b
by any person otherwise than in the course of a trade, profession or vocation
ii
which is carried on wholly or partly in the United Kingdom and the profits of which are chargeable to tax under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005.
5Expenditure on research and development directly undertaken on company’s behalf
1
The company’s qualifying expenditure on sub-contracted research and development is expenditure incurred by it where the following conditions are satisfied.
2
The first condition is that the expenditure is incurred in making payments to—
a
a qualifying body,
b
an individual, or
c
a partnership, each member of which is an individual,
in respect of research and development contracted out by the company to the body, individual or partnership concerned (“the sub-contracted R&D”).
3
The second condition is that the sub-contracted research and development is directly undertaken on behalf of the company by the body, individual or partnership concerned.
4
The third condition is that the expenditure is attributable to relevant research and development in relation to the company.
5
The fourth condition is that the expenditure is not of a capital nature.
6
The fifth condition is that, if the sub-contracted R&D is itself contracted out to the company, it is contracted out—
a
by a large company, or
b
by any person otherwise than in the course of a trade, profession or vocation
ii
which is carried on wholly or partly in the United Kingdom and the profits of which are chargeable to tax under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005.
6Qualifying expenditure on contributions to independent research and development
1
The company’s qualifying expenditure on contributions to independent research and development is expenditure incurred by it where the following conditions are satisfied.
2
The first condition is that the expenditure is incurred in making payments to—
a
a qualifying body,
b
an individual, or
c
a partnership, each member of which is an individual,
for the purpose of funding research and development carried on by the body, individual or partnership concerned (“the funded R&D”).
3
The second condition is that the funded R&D is relevant research and development in relation to the company.
4
The third condition is that the funded R&D is not contracted out to the qualifying body, individual or partnership concerned by another person.
5
The fourth condition is that—
a
if the payment is made to an individual, the company is not connected with the individual when the payment is made, and
b
if the payment is made to a partnership (other than a qualifying body), the company is not connected with any member of the partnership when the payment is made.
Sch. 12 modified (with effect as specified in art. 2 of the commencing S.I. of the commencing S.I.) by Finance Act 2004 (c. 12), s. 53(2)(6); S.I. 2004/3268, art. 2