Session 2012 - 13
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

151

 

(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—

5

(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—

10

(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,

15

(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—

20

(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.

25

(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.

30

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—

35

(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—

40

(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

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

152

 

(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

5

brought into account in calculating the profits of the trade for the

accounting period.

   

(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

10

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)—

“R&D expenditure” means expenditure on research and

15

development in relation to the trade,

“relevant accounting period”, in relation to a company,

means—

(a)   

the first accounting period for which—

(i)   

the company is a qualifying company, and

20

(ii)   

an election under section 357A has effect in

relation to it, and

(b)   

each accounting period that begins before the end of

the period of 4 years beginning with that accounting

period, and

25

“research and development” means activities, other than oil and

gas exploration and appraisal, that fall to be treated as

research and development in accordance with generally

accepted accounting practice.

357CH   

Shortfall in R&D expenditure

30

(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.

35

(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

40

(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

45

calculating the profits of the trade for the accounting period,

and

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

153

 

(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—

E is the amount of R&D expenditure that—

5

(a)   

has been incurred by the company during the

relevant period, and

(b)   

has been brought into account in calculating the

profits of the trade for any accounting period ending

before the first relevant accounting period, and

10

N is the number of days in the relevant period.

(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

15

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—

20

(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

25

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—

30

(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

35

actual R&D expenditure for the next relevant accounting period.

(10)   

For the purposes of this section—

“additional amount”, in relation to a relevant accounting

period, means any amount added to the actual R&D

expenditure for that accounting period by virtue of

40

subsection (8), (9) or (11), and

“the remaining portion” of an additional amount is so much of

that amount as exceeds the difference between—

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

154

 

(a)   

the actual R&D expenditure for the relevant

accounting period in the absence of the additional

amount, and

(b)   

75% of the average amount of R&D expenditure.

(11)   

If—

5

(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

10

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

15

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.

   

For the meaning of “routine deductions”, see sections 357CJ and

20

357CK.

   

Step 2

   

Multiply that amount by 0.1.

   

Step 3

   

Calculate X% of the amount given by Step 2.

25

   

“X%” is the percentage given by Step 2 in section 357C(1).

(2)   

In a case where—

(a)   

the company (“C”) is a member of a group,

(b)   

another member of the group incurs expenses on behalf of C,

(c)   

had they been incurred by C, C would have made a

30

deduction in respect of the expenses in calculating the profits

of the trade for the accounting period, and

(d)   

the deduction would have been a routine deduction,

   

C is to be treated for the purposes of subsection (1) as having made

such a routine deduction.

35

(3)   

Where expenses are incurred by any member of the group on behalf

of C and any other member of the group, subsection (2) applies in

relation to so much of the amount of the expenses as on a just and

reasonable apportionment may properly be regarded as incurred on

behalf of C.

40

357CJ   

Routine deductions

(1)   

For the purposes of section 357CI “routine deductions” means

deductions falling within any of the Heads set out in—

(a)   

subsection (2) (capital allowances),

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

155

 

(b)   

subsection (3) (costs of premises),

(c)   

subsection (4) (personnel costs),

(d)   

subsection (5) (plant and machinery costs),

(e)   

subsection (6) (professional services),

(f)   

subsection (7) (miscellaneous services).

5

   

This is subject to section 357CK (deductions that are not routine

deductions).

(2)   

Head 1 is any allowances under CAA 2001.

(3)   

Head 2 is any deductions made by the company in respect of any

premises occupied by the company.

10

(4)   

Head 3 is any deductions made by the company in respect of—

(a)   

any director or employee of the company, or

(b)   

any externally provided workers.

(5)   

Head 4 is any deductions made by the company in respect of any

plant or machinery used by the company.

15

(6)   

Head 5 is any deductions made by the company in respect of any of

the following services—

(a)   

legal services, other than IP-related services;

(b)   

financial services, including—

(i)   

insurance services, and

20

(ii)   

valuation or actuarial services;

(c)   

services provided in connection with the administration or

management of the company’s directors and employees;

(d)   

any other consultancy services.

(7)   

Head 6 is any deductions made by the company in respect of any of

25

the following services—

(a)   

the supply of water, fuel or power;

(b)   

telecommunications services;

(c)   

computing services, including computer software;

(d)   

postal services;

30

(e)   

the transportation of any items;

(f)   

the collection, removal and disposal of refuse.

(8)   

In this section—

“externally provided worker” has the same meaning as in Part

13 of CTA 2009 (see section 1128 of that Act),

35

“IP-related services” means services provided in connection

with—

(a)   

any application for a right to which this Part applies,

or

(b)   

any proceedings relating to the enforcement of any

40

such right,

“premises” includes any land,

“telecommunications service” means any service that consists in

the provision of access to, and of facilities for making use of,

any telecommunication system (whether or not one provided

45

by the person providing the service), and

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

156

 

“telecommunication system” means any system (including the

apparatus comprised in it) which exists for the purpose of

facilitating the transmission of communications by any

means involving the use of electrical or electro-magnetic

energy.

5

(9)   

The Treasury may by order amend this section.

357CK   

Deductions that are not routine deductions

(1)   

For the purposes of section 357CI a deduction is not a “routine

deduction” if it falls within any of the Heads set out in—

(a)   

subsection (2) (loan relationships and derivative contracts),

10

(b)   

subsection (3) (R&D expenses),

(c)   

subsection (4) (capital allowances for R&D or patents),

(d)   

subsection (5) (R&D-related employee share acquisitions).

(2)   

Head 1 is any debits which are treated as expenses of the trade by

virtue of —

15

(a)   

section 297 of CTA 2009 (debits in respect of loan

relationships), or

(b)   

section 573 of CTA 2009 (debits in respect of derivative

contracts).

(3)   

Head 2 is—

20

(a)   

the amount of any expenditure on research and development

in relation to the trade for which an additional deduction for

the accounting period is obtained by the company under Part

13 of CTA 2009, and

(b)   

the amount of that additional deduction.

25

(4)   

Head 3 is any allowances under—

(a)   

Part 6 of CAA 2001 (research and development allowances),

or

(b)   

Part 8 of CAA 2001 (patent allowances).

(5)   

Head 4 is the appropriate proportion of any deductions allowed

30

under Part 12 of CTA 2009 (relief for employee share acquisitions) in

a case where—

(a)   

shares are acquired by an employee or another person

because of the employee’s employment by the company, and

(b)   

the employee is wholly or partly engaged directly and

35

actively in relevant research and development (within the

meaning of section 1042 of CTA 2009).

(6)   

In subsection (5) “the appropriate proportion”, in relation to a

deduction allowed in respect of an employee, is the proportion of the

staffing costs in respect of the employee which are attributable to

40

relevant research and development for the purposes of Part 13 of

CTA 2009 (see section 1124 of that Act).

   

“Staffing costs” has the same meaning as in that Part (see section 1123

of that Act).

(7)   

Subsections (5) and (6) of section 1124 of CTA 2009 apply for the

45

purposes of subsection (5)(b) as they apply for the purposes of that

section.

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

157

 

(8)   

The Treasury may by order amend this section.

Election for small claims treatment

357CL   

Companies eligible to elect for small claims treatment

(1)   

A company may elect for small claims treatment for an accounting

period if condition A or B is met in relation to the accounting period.

5

(2)   

Condition A is that the aggregate of the amounts of qualifying

residual profit of each trade of the company for the accounting

period does not exceed £1,000,000.

(3)   

Condition B is that—

(a)   

the aggregate of the amounts of qualifying residual profit of

10

each trade of the company for the accounting period does not

exceed the relevant maximum, and

(b)   

the company did not take Step 6 in section 357C(1) or

357DA(1) for the purpose of calculating the relevant IP

profits of any trade of the company for any previous

15

accounting period beginning within the relevant 4-year

period.

(4)   

In subsection (3)(b) “the relevant 4-year period” means the period of

4 years ending immediately before the accounting period mentioned

in subsection (3)(a).

20

(5)   

If the company has no associated company in the accounting period,

the relevant maximum is £3,000,000.

(6)   

If the company has one or more associated companies in the

accounting period, the relevant maximum is—

   

where N is the number of those associated companies in relation to

25

which an election under section 357A has effect for the accounting

period.

(7)   

For an accounting period of less than 12 months, the relevant

maximum is proportionately reduced.

(8)   

Any amount of qualifying residual profit of a trade of the company

30

that is not greater than nil is to be disregarded for the purposes of this

section.

(9)   

Sections 25 to 30 (definition of “associated companies”) have effect

for the purposes of this section.

357CM   

Small claims amount

35

(1)   

This section applies where a company elects for small claims

treatment for an accounting period.

(2)   

The small claims amount in relation to each trade of the company for

the accounting period is—

(a)   

if the amount in subsection (3) is lower than the small claims

40

threshold, 75% of the qualifying residual profit of the trade

for the accounting period;

 
 

 
previous section contents continue
 

© Parliamentary copyright
Revised 9 May 2012