Finance Act 2002

Qualifying expenditure

2 (1) For the purposes of this Schedule “qualifying expenditure” means—

(a) qualifying expenditure on direct research and development (see paragraphs 3 to 5),

(b) qualifying expenditure on sub-contracted research and development (see paragraphs 6 to 11), or

(c) qualifying expenditure on contributions to independent research and development (see paragraph 12).

(2) The qualifying expenditure of a company “for an accounting period” is determined as follows.

(3) The qualifying expenditure on direct or sub-contracted research and development for an accounting period is—

(a) in the case of company that qualifies as a small or medium-sized enterprise in that period, qualifying expenditure that—

(i) is deductible in computing for tax purposes the profits for that period of a trade carried on by the company, or

(ii) would have been so deductible 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,

(disregarding for this purpose section 401 of the Taxes Act 1988 (pre-trading expenditure treated as incurred when trading begins));

(b) in the case of a company that does not qualify as a small or medium-sized enterprise in that period, qualifying expenditure that 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).

(4) The qualifying expenditure on contributions to independent research and development for an accounting period is the expenditure that is incurred on contributions paid in that period.