Corporation Tax Act 2009

Reliefs

1087 Deduction in calculating profits of trade

(1) A company is entitled to corporation tax relief for an accounting period if it meets conditions A, B and C.

(2) Condition A is that the company has incurred expenditure which is qualifying Chapter 7 expenditure for the period.

(3) Condition B is that the company meets the R&D threshold in the period (see section 1097).

(4) Condition C is that the company is carrying on a trade in the period.

(5) For the company to obtain the relief it must make a claim.

(6) The relief is a deduction in calculating the profits of the trade for the period.

(7) For the amount of the deduction see—

(a) section 1089 if the company is a small or medium-sized enterprise in the period, and

(b) section 1091 if the company is a large company throughout the period.

(8) This section is subject to section 1113 (cap on total R&D aid in relation to a particular research and development project).

(9) See also—

(a) section 1088 for the declaration that a large company is required to make in a claim under this section,

(b) section 1094, which prevents a company which is a small or medium-sized enterprise from making a claim if it is not a going concern,

(c) section 1098 for the meaning of “qualifying Chapter 7 expenditure”, and

(d) sections 1099 and 1100 for the meaning of qualifying Chapter 7 expenditure “for” an accounting period.

1088 Large companies: declaration about effect of relief

(1) This section applies if a large company claims relief under section 1087.

(2) The claim must include a declaration that the availability of the relief claimed has resulted in an increase in—

(a) the amount, scope or speed of the research and development undertaken by the company, or

(b) the company’s expenditure on research and development.

1089 SMEs: amount of deduction

(1) This section applies if—

(a) a company makes a claim under section 1087 for relief to which it is entitled for an accounting period, and

(b) the company is a small or medium-sized enterprise in the period.

(2) The amount of the deduction under that section is 40% of the company’s qualifying Chapter 7 expenditure for the period (see sections 1098 and 1099).

(3) The deduction is in addition to any other deduction in respect of the expenditure.

(4) Subsection (2) is subject to the modification contained in section 1090 for larger SMEs.

(5) Expenditure taken into account for the purpose of determining the amount of the deduction may include expenditure which is qualifying Chapter 7 expenditure for the accounting period because of section 1099(1)(b) (pre-trading expenditure).

(6) This is despite the fact that the expenditure is unrelated to the trade mentioned in section 1087(4).

1090 Modification of section 1089 for larger SMEs

(1) Subsection (2) applies if a company which makes a claim under section 1087 for relief to which it is entitled for an accounting period—

(a) is a larger SME in the period, and

(b) obtains an R&D tax credit for the period under Chapter 2.

(2) Section 1089 has effect in relation to the company as if for subsection (2) there were substituted—

“(2) The amount of the deduction under that section is 40% of so much of the company’s qualifying Chapter 7 expenditure for the period as is expenditure in respect of which the company is not entitled to relief under Chapter 2.”

1091 Large companies: amount of deduction

(1) This section applies if—

(a) a company makes a claim under section 1087 for relief to which it is entitled for an accounting period, and

(b) the company is a large company throughout the period.

(2) The amount of the deduction under that section is the sum of—

(a) amount A, and

(b) amount B.

(3) Amount A is 40% of so much of the company’s qualifying Chapter 7 expenditure for the period as is allowable as a deduction in calculating for corporation tax purposes the profits for the period of a trade carried on by the company.

(4) Amount B is 140% of so much of the company’s qualifying Chapter 7 expenditure for the period that is not so allowable.

(5) The deduction is in addition to any other deduction in respect of the expenditure.

(6) See sections 1098 and 1100 for the meaning of “qualifying Chapter 7 expenditure” and provision about when such expenditure is “for” an accounting period.

1092 SMEs: deemed trading loss for pre-trading expenditure

(1) A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to D.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

(3) Condition B is that the company meets the R&D threshold in the period (see section 1097).

(4) Condition C is that the company has incurred expenditure which is qualifying Chapter 7 expenditure for the period as a result of section 1099(1)(b) (“pre-trading qualifying Chapter 7 expenditure”).

(5) Condition D is that the company is not carrying on a trade in the period.

(6) For the company to obtain the relief it must make an election.

See section 1094 (which prevents a company from making an election if it is not a going concern).

(7) The relief is that the company is treated as if it had made a trading loss in the period.

(8) The amount of the trading loss is—

(a) 40% of so much of the pre-trading qualifying Chapter 7 expenditure for the period as is expenditure in respect of which the company is also entitled to relief under Chapter 2, and

(b) 140% of so much of the pre-trading qualifying Chapter 7 expenditure for the period as is expenditure in respect of which the company is not entitled to relief under Chapter 2,

but this is subject to section 1093.

(9) If a company makes an election under this section in respect of pre-trading qualifying expenditure, section 61 (pre-trading expenses) does not apply to the expenditure.

(10) This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).

(11) See also section 1137 for provision about the accounting periods of a company which is not within the charge to corporation tax.

(12) See sections 1098 and 1099 for the meaning of “qualifying Chapter 7 expenditure” and provision about when such expenditure is “for” an accounting period.

1093 Modification of section 1092 for larger SMEs

(1) Subsection (2) applies if a company which makes a claim under section 1087 for relief to which it is entitled for an accounting period—

(a) is a larger SME in the period, and

(b) obtains an R&D tax credit for the period under Chapter 2.

(2) Section 1092 has effect in relation to the company as if subsection (8)(a) were omitted.

1094 Relief only available to SME where company is going concern

(1) A company which is a small or medium-sized enterprise may only make—

(a) a claim under section 1087, or

(b) an election under section 1092,

at a time when it is a going concern.

(2) For the purposes of this section 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 R&D tax credits under Chapter 2 or this Chapter.

(3) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.