Part 13F5... expenditure on research and development
Chapter 2F6Relief for loss-making, R&D-intensive SMEs
Pt. 13 Ch. 2 heading substituted (with effect in relation to accounting periods beginning on or after 1.4.2024) by Finance Act 2024 (c. 3), Sch. 1 paras. 6(2), 16 (with Sch. 1 para. 18); S.I. 2024/286, reg. 2
Reliefs
1044Additional deduction in calculating profits of trade
1
A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to F10F.
2
Condition A is that the company is a small or medium-sized enterprise in the period.
F82A
Condition B is that the company—
a
meets the R&D intensity condition in the period, or
b
obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.
F23
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4
Condition C is that the company carries on a trade in the period.
5
Condition D is that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.
F95A
Condition E is that the company makes a loss in the trade in the period.
5B
Condition F is that the company is not an ineligible company (see section 1142).
6
7
The relief is an additional deduction in calculating the profits of the trade for the period. F13The deduction is, in particular, additional to any given under section 87.
8
The amount of the additional deduction is F486% of the qualifying Chapter 2 expenditure.
F149
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10
For the meaning of “qualifying Chapter 2 expenditure” see section 1051.
1045Alternative treatment for pre-trading expenditure: deemed trading loss
1
A company is entitled to corporation tax relief for an accounting period if it meets F17each of conditions A to D.
2
Condition A is that the company is a small or medium-sized enterprise in the period.
F152A
Condition B is that the company—
a
meets the R&D intensity condition in the period, or
b
obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.
F13
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Condition C is that the company has incurred qualifying Chapter 2 expenditure in the period which—
a
is not allowable as a deduction in calculating for corporation tax purposes the profits of a trade carried on by it at the time the expenditure was incurred, but
b
would have been so allowable had it, at that time, been carrying on a trade consisting of the activities in respect of which the expenditure was incurred.
F164A
Condition D is that the company is not an ineligible company (see section 1142).
5
6
The relief is that the company is treated as if it had made a trading loss in the period.
7
The trading loss is equal to F3186% of the qualifying Chapter 2 expenditure.
8
If a company makes an election under this section in respect of qualifying Chapter 2 expenditure, section 61 (pre-trading expenses) does not apply to the expenditure.
F209
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10
For the meaning of “qualifying Chapter 2 expenditure” see section 1051.
11
See also section 1137, which makes provision about the accounting periods of a company which is not within the charge to corporation tax.
1045ZAC1F7R&D intensity condition
1
This section determines whether a company meets the R&D intensity condition in an accounting period for the purposes of sections 1044 and 1045.
2
If the company is not connected with another company, the company meets the condition if its relevant R&D expenditure for the period amounts to at least 30% of its total relevant expenditure for the period.
3
If the company is connected with at least one other company, the company meets the condition if the connected companies’ relevant R&D expenditure for the period amounts to at least 30% of the connected companies’ total relevant expenditure for the period.
4
In subsection (3), “the connected companies” refers to the company to which this section is being applied and each company with which it is connected; and the references to their expenditure are to the aggregate of each of their expenditures.
5
Expenditure forms part of a company’s total relevant expenditure for an accounting period if—
a
in accordance with generally accepted accounting practice, it is brought into account in calculating the profits for the period of any trade carried on by the company,
b
it is expenditure in respect of which the company is, for the period, entitled to relief under section 1045, or
c
in reliance on section 1308(2) (expenditure brought into account in determining value of intangible asset allowable as a deduction), it is brought into account in calculating the company’s profits for the period for corporation tax purposes.
6
But—
a
expenditure of a company is to be ignored for the purposes of subsection (5) if it consists of a payment, or other transfer of value, to another company with which the company is connected, and
b
where expenditure forms part of a company's total relevant expenditure by virtue of subsection (5)(c), a deduction brought into account as mentioned in subsection (5)(a) is to be ignored for the purposes of that provision to the extent that a corresponding deduction for corporation tax purposes is prevented by section 1308(5).
7
Expenditure forms part of a company’s relevant R&D expenditure for an accounting period if—
a
b
it is expenditure in respect of which the company would, assuming that it met the R&D intensity condition, be entitled to relief under this Chapter for the period.
8
For the purposes of this section in its application to an accounting period, a company is to be treated as connected with another company if it is connected with that company on any day within the period.
Words in Pt. 13 heading omitted (with effect in relation to accounting periods beginning on or after 1.4.2024) by virtue of Finance Act 2024 (c. 3), Sch. 1 paras. 3, 16 (with Sch. 1 para. 18); S.I. 2024/286, reg. 2