SCHEDULE 1 continued

Previous Next

Contents page 1- - - - - - - - - - - - - - - - - - - Last page

(7) In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate places—

“adjusted net income (in Chapter 8 of Part 10) section 681H”
“partner (in Chapter 8 of Part 10) section 681G”
“week (in Chapter 8 of Part 10) section 681H”

6 (1) ITA 2007 is amended as follows.

(2) In section 1 (overview of the Income Tax Acts), in subsection (1)(a), after “social security income” insert “and makes provision for the high income child benefit charge”.

(3) In section 30 (additional tax), in subsection (1), after “section 809ZO (tainted charity donations by trustees: charge to tax),” insert—

“Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge),”.

Commencement

7 (1) The amendments made by this Schedule have effect for the tax year 2012-13 and subsequent tax years.

(2) In relation to the tax year 2012-13, references in section 681B of ITEPA 2003 (as inserted by paragraph 1) to an amount to which a person is entitled in respect of child benefit for a week in the tax year do not include any amount to which the person is entitled in respect of child benefit for a week beginning before 7 January 2013.

(3) In sub-paragraph (2), “week” means a period of 7 days beginning with a Monday.

Section 19

SCHEDULE 2 Profits arising from the exploitation of patents etc

Part 1 Amendments of CTA 2010

1 (1) In CTA 2010, after Part 8 insert—

“ Part 8A Profits arising from the exploitation of patents etc

CHAPTER 1 Reduced corporation tax rate for profits from patents etc
357A Election for special treatment of profits from patents etc

(1) A company may elect that any relevant IP profits of a trade of the company for an accounting period for which it is a qualifying company are chargeable at a lower rate of corporation tax.

(2) An election under subsection (1) is to be given effect by allowing a deduction to be made in calculating for corporation tax purposes the profits of the trade for the period.

(3) The amount of the deduction is—

where—

(4) The special IP rate of corporation tax is 10%.

(5) Chapter 2 specifies when a company is a qualifying company.

(6) Chapter 3 makes provision for determining the relevant IP profits or relevant IP losses of a trade.

(7) Chapter 4 makes provision for an alternative way of determining the relevant IP profits or losses of a trade known as “streaming”.

(8) Chapter 5 makes provision in relation to the relevant IP losses of a trade.

(9) Chapter 6 contains anti-avoidance provisions.

(10) Chapter 7 contains supplementary provision.

CHAPTER 2 Qualifying companies
357B Meaning of “qualifying company”

(1) A company is a qualifying company for an accounting period if—

(a) condition A or B is met, and

(b) in the case of a company that is a member of a group, condition C is met.

(2) Condition A is that, at any time during the accounting period, the company—

(a) holds any qualifying IP rights, or

(b) holds an exclusive licence in respect of any qualifying IP rights.

For the meaning of “exclusive licence”, see section 357BA.

(3) Condition B is that—

(a) the company has held a qualifying IP right or an exclusive licence in respect of such a right,

(b) the company has received income in respect of an event which occurred in relation to the right or licence, or any part of which so occurred, at a time when—

(i) the company was a qualifying company, and

(ii) an election under section 357A had effect in relation to it, and

(c) the income falls to be taxed in the accounting period.

(4) A right is a qualifying IP right for the purposes of this Part if—

(a) it is a right to which this Part applies (see section 357BB), and

(b) the company meets the development condition in relation to the right (see section 357BC).

(5) Condition C is that the company meets the active ownership condition for the accounting period (see section 357BE).

357BA Meaning of “exclusive licence”

(1) In this Part “exclusive licence”, in relation to a right (“the principal right”), means a licence which—

(a) is granted by the person who holds either the principal right or an exclusive licence in respect of the principal right (“the proprietor”), and

(b) confers on the person holding the licence (“the licence-holder”), or on the licence-holder and persons authorised by it, the rights in respect of the principal right that are listed in subsection (2).

(2) The rights are—

(a) one or more rights conferred to the exclusion of all other persons (including the proprietor) in one or more countries or territories, and

(b) the right—

(i) to bring proceedings without the consent of the proprietor or any other person in respect of any infringement of the rights within paragraph (a), or

(ii) to receive the whole or the greater part of any damages awarded in respect of any such infringement.

(3) Where the licence-holder has any right within subsection (2)(b) by virtue of any enactment or rule of law, the right is to be regarded for the purposes of this section as conferred by the licence.

(4) Where—

(a) a company (“C”) that is a member of a group holds either a right to which this Part applies or an exclusive licence in respect of such a right, and

(b) C confers on another company that is a member of the group all of the rights held by C in respect of the invention,

that other company is to be treated for the purposes of this Part as holding an exclusive licence in respect of that right.

(5) For the purposes of subsection (4) it does not matter if the rights conferred by C do not include the right to enforce, assign or grant a licence of any of those rights.

357BB Rights to which this Part applies

(1) This Part applies to the following rights—

(a) a patent granted under the Patents Act 1977,

(b) a patent granted under the European Patent Convention,

(c) a right of a specified description which corresponds to a right within paragraph (a) or (b) and is granted under the law of a specified EEA state,

(d) a supplementary protection certificate,

(e) any plant breeders’ rights granted in accordance with Part 1 of the Plant Varieties Act 1997,

(f) any Community plant variety rights granted under Council Regulation (EC) No 2100/94.

(2) Where—

(a) directions are in force under section 22 of the Patents Act 1977 (information prejudicial to national security or safety of public) with respect to an application for a patent under that Act, and

(b) the person making the application has been notified under section 18(4) of that Act that the application complies with the requirements of the Act and the rules,

the person is to be treated for the purposes of this Part as if the person had been granted the patent under that Act.

(3) Where—

(a) a person holds a marketing authorisation in respect of a product in accordance with any EU legislation, and

(b) the product benefits from marketing protection (see subsection (4)) or data protection (see subsection (5)),

the person is to be treated for the purposes of this Part as having been granted a right to which this Part applies in respect of the product.

(4) For the purposes of this section a product benefits from marketing protection if—

(a) the product benefits from marketing protection by virtue of Article 14.11 of Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human use, or

(b) any of the following prohibitions is in force—

(i) the prohibition on placing on the market a generic of the product imposed by Article 10.1 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use,

(ii) the prohibition imposed by Article 8.1 of Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, and

(iii) the prohibition on placing on the market a generic of the product imposed by Article 13.1 of Directive 2001/82/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to veterinary medicinal products.

(5) For the purposes of this section a product benefits from data protection if—

(a) the product benefits from the data exclusivity conferred by Article 10.5 of Directive 2001/83/EC of the European Parliament and of the Council,

(b) the prohibition on referring to the results of tests or trials in relation to the product imposed by Article 74a of that Directive is in force, or

(c) data relating to the product benefits from data protection under Article 59 of Regulation (EC) No 1107/2009 of the European Parliament and of the Council of 21 October 2009 concerning the placing of plant protection products on the market.

(6) The reference to data in subsection (5)(c) does not include a study necessary for the renewal or review of a marketing authorisation granted in respect of the product in accordance with Regulation (EC) No 1107/2009.

(7) In this section—

(8) The Treasury may by order—

(a) amend this section so as to make provision about the circumstances in which a product benefits from marketing or data protection for the purposes of this section;

(b) make such provision amending any reference in this section to EU legislation as appears to them appropriate in consequence of any EU legislation amending or replacing that EU legislation.

(9) An order made under this section may make any incidental, supplemental, consequential, transitional or saving provision, including provision amending or modifying this Part.

357BC The development condition

(1) A company meets the development condition in relation to a right if condition A, B, C or D is met.

Section 357BD (meaning of “qualifying development”) applies for the purposes of this section.

Section 357BD (meaning of “qualifying development”) applies for the purposes of this section.

(2) Condition A is that—

(a) the company has at any time carried out qualifying development in relation to the right, and

(b) the company has not ceased to be, or become, a controlled member of a group since that time.

(3) Condition B is that—

(a) the company has at any time carried out qualifying development in relation to the right,

(b) the company has ceased to be, or become, a controlled member of a group since that time,

(c) the company has, for a period of 12 months beginning with the day on which it ceased to be, or became, a controlled member of the group, performed activities of the same description as those that constituted the qualifying development, and

(d) the company remains a member of that group or (as the case may be) does not become a controlled member of any other group.

(4) Condition C is that—

(a) the company is a member of a group,

(b) another company that is or has been a member of the group has carried out qualifying development in relation to the right, and

(c) that other company was a member of the group at the time it carried out the qualifying development.

(5) Condition D is that—

(a) the company is a member of a group,

(b) another company that is or has been a member of the group has carried out qualifying development in relation to the right,

(c) that other company (“T”) or, where another member of the group begins to carry on the trade which T carried on immediately before becoming a member of the group, either or both of those companies have, while carrying on that trade as a member of the group, performed activities of the same description as those that constituted the qualifying development, and

(d) those activities of those companies, taken together, have been performed for a period of 12 months beginning with the day on which T became a member of the group.

(6) For the purposes of conditions A and B, a company becomes a controlled member of a group at any time if—

(a) another company (“P”) either becomes the holder of a major interest in the company, or begins to control the company, at that time, and

(b) immediately before that time the company was not associated with P or with any company associated with P immediately before that time.

(7) For the purposes of conditions A and B, a company ceases to be a controlled member of a group at any time if—

(a) every other company which immediately before that time held a major interest in, or controlled, the company ceases to do so, and

(b) as a result the company ceases to be associated with any of those companies.

(8) Where—

(a) a company ceases to be a controlled member of a group at any time, and

(b) at that time the company holds a major interest in, or controls, any other company,

that other company is to be treated for the purposes of conditions A and B as also having ceased to be a controlled member of the group at that time.

(9) In subsections (6) and (7) “associated” is to be read in accordance with section 357GD(3).

(10) The following provisions apply for the purposes of subsections (6) to (8)—

(11) A company that meets the development condition in relation to a right by virtue of the performance of the activities mentioned in

subsection (3) or (5) for the period of 12 months so mentioned is to be regarded as meeting that condition in relation to the right during that period (as well as at any other time when the company meets the condition).

357BD Meaning of “qualifying development”

(1) A company carries out “qualifying development” in relation to a right if—

(a) it creates, or significantly contributes to the creation of, the invention, or

(b) it performs a significant amount of activity for the purposes of developing the invention or any item or process incorporating the invention.

(2) The reference in subsection (1)(b) to developing the invention includes developing ways in which the invention may be used or applied.

(3) For the purposes of section 357BC it does not matter whether the qualifying development was carried out before or after—

(a) the company, or

(b) where the company is a member of a group, any member of the group,

became the holder of the right or (as the case may be) an exclusive licence in respect of the right.

357BE The active ownership condition

(1) A company meets the active ownership condition for an accounting period if all or almost all of the qualifying IP rights held by the company in that accounting period are rights in respect of which condition A or B is met.

(2) Condition A is that during the accounting period the company performs a significant amount of management activity in relation to the rights.

(3) In subsection (2) “management activity”, in relation to any qualifying IP rights, means formulating plans and making decisions in relation to the development or exploitation of the rights.

(4) Condition B is that the company meets the development condition in relation to the rights by virtue of section 357BC(2) or (3).

(5) Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.

CHAPTER 3 Relevant IP profits
Steps for calculating relevant IP profits of a trade
357C Relevant IP profits

(1) To determine the relevant IP profits of a trade of a company for an accounting period—

Step 1

Calculate the total gross income of the trade for the accounting period (see section 357CA).

Step 2

Calculate the percentage (“X%”) given by the following formula—

where—

Step 3

Calculate X% of the profits of the trade for the accounting period.

If there are no such profits, calculate X% of the losses of the trade (expressed as a negative figure) for the accounting period.

In calculating the profits of the trade for the purposes of this step, make any adjustments required by section 357CG (and references in this step to the profits or losses of the trade are to be read subject to any such adjustments).

Step 4

Deduct from the amount given by Step 3 the routine return figure (see section 357CI).

The amount given by this step is the “qualifying residual profit”.

If the amount of the qualifying residual profit is not greater than nil, go to Step 7.

Step 5

If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM).

If the company has not, go to Step 6.

Step 6

Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN).

Step 7

If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant

of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section.

(2) If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period.

(3) If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5).

Total gross income of trade
357CA Total gross income of a trade

(1) For the purposes of this Part the “total gross income” of a trade of a company for an accounting period is the aggregate of the amounts falling within the Heads set out in—

(a) subsection (3) (revenue),

(b) subsection (5) (compensation),

(c) subsection (6) (adjustments),

(d) subsection (7) (proceeds from intangible fixed assets),

(e) subsection (8) (profits from patent rights).

(2) But the total gross income of the trade does not include any finance income (see section 357CB).

(3) Head 1 is any amounts which—

(a) in accordance with generally accepted accounting practice (“GAAP”) are recognised as revenue in the company’s profit and loss account or income statement for the accounting period, and

(b) are brought into account as credits in calculating the profits of the trade for the accounting period.

(4) Where the company does not draw up accounts for an accounting period in accordance with GAAP, the reference in subsection (3)(a) to any amounts which in accordance with GAAP are recognised as revenue in the company’s profit and loss account or income statement for the accounting period is to be read as a reference to any amounts which would be so recognised if the company had drawn up such accounts for that accounting period.

(5) Head 2 is any amounts of damages, proceeds of insurance or other compensation (so far as not falling within Head 1) which are brought into account as credits in calculating the profits of the trade for the accounting period.

(6) Head 3 is any amounts (so far as not falling within Head 1) which are brought into account as receipts under section 181 of CTA 2009 (adjustment on change of basis) in calculating the profits of the trade for the accounting period.

(7) Head 4 is any amounts (so far as not falling within Head 1) which are brought into account as credits under Chapter 4 of Part 8 of CTA 2009

(realisation of intangible fixed assets) in calculating the profits of the trade for the accounting period.

(8) Head 5 is any profits from the sale by the company of the whole or part of any patent rights held for the purposes of the trade which are taxed under section 912 of CTA 2009 in the accounting period.

357CB Finance income

(1) For the purposes of this Part “finance income”, in relation to a trade of a company, means—

(a) any credits which are treated as receipts of the trade by virtue of—

(i) section 297 of CTA 2009 (credits in respect of loan relationships), or

(ii) section 573 of CTA 2009 (credits in respect of derivative contracts),

(b) any amount which in accordance with generally accepted accounting practice falls to be recognised as arising from a financial asset, and

(c) any return, in relation to an amount, which—

(i) is produced for the company by an arrangement to which it is party, and

(ii) is economically equivalent to interest.

(2) In subsection (1)—

(3) For the purposes of subsection (1)(c), the amount of a return is the amount which by virtue of the return would, in calculating the company’s chargeable profits, be treated under section 486B of CTA 2009 (disguised interest to be regarded as profit from loan relationship) as a profit arising to the company from a loan relationship.

But, in calculating that profit for the purposes of this subsection, sections 486B(7) and 486C to 486E of that Act are to be ignored.

But, in calculating that profit for the purposes of this subsection, sections 486B(7) and 486C to 486E of that Act are to be ignored.

Relevant IP income
357CC Relevant IP income

(1) For the purposes of this Part “relevant IP income” means income falling within any of the Heads set out in—

(a) subsection (2) (sales income),

(b) subsection (6) (licence fees),

(c) subsection (7) (proceeds of sale etc),

(d) subsection (8) (damages for infringement),

(e) subsection (9) (other compensation).

This is subject to section 357CE (excluded income).

(2) Head 1 is income arising from the sale by the company of any of the following items—

(a) items in respect of which a qualifying IP right held by the company has been granted (“qualifying items”);

(b) items incorporating one or more qualifying items;

(c) items that are wholly or mainly designed to be incorporated into items within paragraph (a) or (b).

(3) For the purposes of this Part an item and its packaging are not to be treated as a single item, unless the packaging performs a function that is essential for the use of the item for the purposes for which it is intended to be used.

(4) In subsection (3) “packaging”, in relation to an item, means any form of container or other packaging used for the containment, protection, handling, delivery or presentation of the item, including by way of attaching the item to, or winding the item round, some other article.

(5) In a case where a qualifying item and an item that is designed to incorporate that item (“the parent item”) are sold together as, or as part of, a single unit for a single price, the reference in subsection (2)(b) to an item incorporating a qualifying item includes a reference to the parent item.

(6) Head 2 is income consisting of any licence fee or royalty which the company receives under an agreement granting another person any of the following rights only—

(a) a right in respect of any qualifying IP right held by the company,

(b) any other right in respect of a qualifying item or process, and

(c) in the case of an agreement granting any right within paragraph (a) or (b), a right granted for the same purposes as those for which that right was granted.

In this subsection “qualifying process” means a process in respect of which a qualifying IP right held by the company has been granted.

(7) Head 3 is any income arising from the sale or other disposal of a qualifying IP right or an exclusive licence in respect of such a right.

(8) Head 4 is any amount received by the company in respect of an infringement, or alleged infringement, of a qualifying IP right held by the company at the time of the infringement or alleged infringement.

(9) Head 5 is any amount of damages, proceeds of insurance or other compensation, other than an amount in respect of an infringement or alleged infringement of a qualifying IP right, which is received by the company in respect of an event and—

(a) is paid in respect of any items that fell within subsection (2) at the time of that event, or

(b) represents a loss of income which would, if received by the company at the time of that event, have been relevant IP income.

(10) But income is not relevant IP income by virtue of subsection (8) or (9) unless the event in respect of which the income is received, or any part of that event, occurred at a time when—

(a) the company was a qualifying company, and

(b) an election under section 357A had effect in relation to it.

(11) In a case where the whole of that event does not occur at such a time, subsection (8) or (9) (as the case may be) applies only to so much of the amount received by the company in respect of the event as on a just and reasonable apportionment is properly attributable to such a time.

(12) Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.

357CD Notional royalty

(1) This section applies where—

(a) a company, for the purposes of any trade of the company, holds any rights mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of any such rights, and

(b) the rights are relevant qualifying IP rights.

(2) For the purposes of this section a qualifying IP right is a “relevant qualifying IP right” in relation to an accounting period if—

(a) the total gross income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that right, and

(b) that income is not relevant IP income or excluded income.

Such income is referred to in this section as “IP-derived income”.

(3) The company may elect that the notional royalty in respect of the trade for the accounting period is to be treated for the purposes of this Part as if it were relevant IP income.

(4) The notional royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the IP-derived income for that accounting period.

(5) The “appropriate percentage” is the proportion of any IP-derived income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant qualifying IP rights in that accounting period if the company were not otherwise able to exploit them.

(6) For the purposes of determining the appropriate percentage under this section, assume that—

(a) the company and P are dealing at arm’s length,

(b) the company, or the company and persons authorised by it, will have the right to exploit the relevant qualifying IP rights to the exclusion of any other person (including P),

(c) the company will have the same rights in relation to the relevant qualifying IP rights as it actually has,

(d) the relevant qualifying IP rights are conferred on the relevant day,

(e) the appropriate percentage for the accounting period is determined at the beginning of the accounting period,

(f) the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant qualifying IP rights, and

(g) no income other than IP-derived income will arise from anything done by the company that involves the exploitation by the company of the relevant qualifying IP rights.

(7) In subsection (6)(d) “the relevant day”, in relation to a relevant qualifying IP right or a licence in respect of such a right, means—

(a) the first day of the accounting period, or

(b) if later, the day on which the company first began to hold the right or licence.

(8) In determining the appropriate percentage, the company must act in accordance with—

(a) Article 9 of the OECD Model Tax Convention, and

(b) the OECD transfer pricing guidelines.

(9) In this section “excluded income” means any income falling within any of the Heads in section 357CE.

357CE Excluded income

(1) For the purposes of this Part income falling within any of the Heads set out in the following subsections is not relevant IP income—

(a) subsection (2) (ring fence income),

(b) subsection (3) (income attributable to non-exclusive licences).

(2) Head 1 is income arising from oil extraction activities or oil rights.

In this subsection “oil extraction activities” and “oil rights” have the same meaning as in Part 8 (see sections 272 and 273).

In this subsection “oil extraction activities” and “oil rights” have the same meaning as in Part 8 (see sections 272 and 273).

(3) Head 2 is income which on a just and reasonable apportionment is properly attributable to a licence (a “non-exclusive licence”) held by the company which—

(a) is a licence in respect of an item or process, but

(b) is not an exclusive licence in respect of a qualifying IP right.

(4) In a case where—

(a) a company holds an exclusive licence in respect of a qualifying IP right, and

(b) the licence also confers on the company (or on the company and persons authorised by it) any right in respect of the invention otherwise than to the exclusion of all other persons,

the licence is to be treated for the purposes of this Part as if it were two separate licences, one an exclusive licence that does not confer any such rights, and the other a non-exclusive licence conferring those rights.

357CF Mixed sources of income

(1) This section applies to any income that—

(a) is mixed income, or

(b) is paid under a mixed agreement.

(2) “Mixed income” means the proceeds of sale in a case where an item falling within subsection (2) of section 357CC and an item not falling within that subsection are sold together as, or as part of, a single unit for a single price.

(3) A “mixed agreement” is an agreement providing for—

(a) one or more of the matters in paragraphs (a) to (c) of subsection (4), and

(b) one or more of the matters in paragraphs (d) to (g) of that subsection.

(4) The matters are—

(a) the sale of an item falling within section 357CC(2),

(b) the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6),

(c) a sale or disposal falling within section 357CC(7),

(d) the sale of any other item,

(e) the grant of any other right,

(f) any other sale or disposal,

(g) the provision of any services.

(5) So much of the income as on a just and reasonable apportionment is properly attributable to—

(a) the sale of an item falling within section 357CC(2),

(b) the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6), or

(c) a sale or disposal falling within section 357CC(7),

is to be regarded for the purposes of this Part as relevant IP income.

(6) But where the amount of income that on such an apportionment is properly attributable to any of the matters in paragraphs (d) to (g) of subsection (4) is a trivial proportion of the income to which this section applies, all of that income is to be regarded for the purposes of this Part as relevant IP income.

Calculating profits of trade
357CG Adjustments in calculating profits of trade

(1) This section applies for the purposes of determining the relevant IP profits of a trade of a company for an accounting period.

(2) In calculating the profits of the trade for the accounting period—

(a) there are to be added the amounts in subsection (3), and

(b) there are to be deducted the amounts in subsection (4).

(3) The amounts to be added are—

(a) the amount of any debits which are treated as expenses of the trade by virtue of—

(i) section 297 of CTA 2009 (debits in respect of loan relationships), or

(ii) section 573 of CTA 2009 (debits in respect of derivative contracts), and

(b) the amount of any additional deduction for the accounting period obtained by the company under Part 13 of CTA 2009 for expenditure on research and development in relation to the trade.

(4) The amounts to be deducted are any amounts of finance income brought into account in calculating the profits of the trade for the accounting period.

(For the meaning of “finance income”, see section 357CB.)

(For the meaning of “finance income”, see section 357CB.)

(5) In a case where there is a shortfall in R&D ; expenditure in relation to the trade for a relevant accounting period (see section 357CH), the amount of R&D ; expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CH(2).

(6) For the purposes of subsection (5)—

357CH Shortfall in R&D ; expenditure

(1) There is a shortfall in R&D expenditure in relation to a trade of a company for a relevant accounting period if the actual R&D expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of R&D expenditure.

(2) The amount that is to be added to the actual R&D expenditure for the purposes of section 357CG(5) is an amount equal to the difference between—

(a) 75% of the average amount of R&D expenditure, and

(b) the actual R&D expenditure, as adjusted under subsections (8) to (11).

(3) In this section—

(a) the “actual R&D expenditure” of a trade of a company for an accounting period is the amount of R&D expenditure that (ignoring section 357CG(5)) is brought into account in calculating the profits of the trade for the accounting period, and

(b) “R&D expenditure” and “relevant accounting period” have the meaning given by section 357CG(6).

(4) The average amount of R&D expenditure is—

where—

(5) The relevant period is the shorter of—

(a) the period of 4 years ending immediately before the first relevant accounting period, and

(b) the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period.

(6) For a relevant accounting period of less than 12 months, the average amount of R&D expenditure is proportionately reduced.

(7) Subsections (8) to (11) apply for the purposes of determining—

(a) whether there is a shortfall in R&D expenditure for a relevant accounting period, and

(b) if there is such a shortfall, the amount to be added by virtue of subsection (2).

(8) If the amount of the actual R&D expenditure for a relevant accounting period is greater than the average amount of R&D expenditure, the difference between the two amounts is to be added to the actual R&D expenditure for the next relevant accounting period.

(9) If—

(a) there is not a shortfall in R&D expenditure for a relevant accounting period, but

(b) in the absence of any additional amount, there would be a shortfall in R&D expenditure for that accounting period,

the remaining portion of the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period.

(10) For the purposes of this section—

(11) If—

(a) there is not a shortfall in R&D expenditure for a relevant accounting period, and

(b) there would not be a shortfall in R&D expenditure for that accounting period in the absence of any additional amount,

the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)).

Routine return figure
357CI Routine return figure

(1) To determine the routine return figure in relation to a trade of a company for an accounting period—

Step 1

Take the aggregate of any routine deductions made by the company in calculating the profits of the trade for the accounting period.

Previous Next

Contents page 1- - - - - - - - - - - - - - - - - - - Last page