Corporation Tax Act 2009

1134 Qualifying element of sub-contractor payment: connected persons

(1) This section applies if—

(a) a company makes a sub-contractor payment,

(b) the company and the sub-contractor are connected, and

(c) in accordance with generally accepted accounting practice, the whole of the sub-contractor payment and all of the sub-contractor’s relevant expenditure have been brought into account in determining the sub-contractor’s profit or loss for a relevant period.

(2) The qualifying element of the sub-contractor payment is—

(a) the entire payment, or

(b) if less, an amount equal to the sub-contractor’s relevant expenditure.

(3) “Relevant expenditure” of the sub-contractor means expenditure that—

(a) is incurred by the sub-contractor in carrying on, on behalf of the company, the activities to which the sub-contractor payment relates,

(b) is not of a capital nature,

(c) is incurred on staffing costs, software or consumable items or relevant payments to the subjects of a clinical trial or is qualifying expenditure on externally provided workers, and

(d) is not subsidised.

(4) “Relevant period” means a period—

(a) for which accounts are drawn up for the sub-contractor, and

(b) that ends not more than 12 months after the end of the company’s period of account in which the sub-contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining the company’s profit or loss.

(5) In the following sections, which apply for the purpose of determining whether a sub-contractor’s expenditure meets the requirements of subsection (3)(c) and (d)—

(a) section 1123 (staffing costs),

(b) sections 1127 to 1131 (qualifying expenditure on externally provided workers), and

(c) section 1138 (subsidised expenditure),

references to a company are to be read as references to the sub-contractor.

(6) Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this section is to be made on a just and reasonable basis.