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Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

242

 

(b)   

any person otherwise than in the course of carrying on a

chargeable trade.

(3)   

A “chargeable trade” is—

(a)   

a trade, profession or vocation carried on wholly or partly in

the United Kingdom, the profits of which are chargeable to

5

income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)   

a trade carried on wholly or partly in the United Kingdom,

the profits of which are chargeable to corporation tax under

Chapter 2 of this Part.

(4)   

Condition B is that the expenditure is expenditure to which section

10

104D or 104E applies.

104D    

Expenditure on sub-contracted R&D undertaken in-house

(1)   

This section applies to expenditure on research and development

contracted out to a company if conditions A, B and C are met.

(2)   

Condition A is that the research and development is undertaken by

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the company itself.

(3)   

Condition B is that the expenditure is—

(a)   

incurred on staffing costs (see section 1123),

(b)   

incurred on software or consumable items (see section 1125),

(c)   

qualifying expenditure on externally provided workers (see

20

section 1127), or

(d)   

incurred on relevant payments to the subjects of a clinical

trial (see section 1140).

(4)   

Condition C is that the expenditure is attributable to relevant

research and development in relation to the company.

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(5)   

See sections 1124, 1126 and 1132 for provision about when

expenditure within subsection (3)(a), (b) or (c) is attributable to

relevant research and development.

104E    

Expenditure on sub-contracted R&D not undertaken in-house

(1)   

This section applies to expenditure on research and development

30

contracted out to a company if conditions A, B and C are met.

(2)   

Condition A is that the expenditure is incurred in making payments

to—

(a)   

a qualifying body,

(b)   

an individual, or

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(c)   

a firm, each member of which is an individual,

   

in respect of research and development contracted out by the

company to the body, individual or firm.

(3)   

Condition B is that the research and development is undertaken by

the body, individual or firm itself.

40

(4)   

Condition C is that the expenditure is attributable to relevant

research and development in relation to the company.

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

243

 

(5)   

See sections 1124, 1126 and 1132 for provision about when particular

kinds of expenditure are attributable to relevant research and

development.

SMEs: subsidised qualifying expenditure

104F    

Subsidised qualifying expenditure

5

   

For the purposes of this Chapter a company’s “subsidised qualifying

expenditure” means—

(a)   

its subsidised qualifying expenditure on in-house direct

research and development (see section 104G), and

(b)   

its subsidised qualifying expenditure on contracted out

10

research and development (see section 104H).

104G    

Subsidised qualifying expenditure on in-house direct R&D

(1)   

A company’s “subsidised qualifying expenditure on in-house direct

research and development” means expenditure incurred by it in

relation to which each of conditions A to D is met.

15

(2)   

Condition A is that the expenditure is subsidised.

(3)   

Condition B is that the expenditure is—

(a)   

incurred on staffing costs (see section 1123),

(b)   

incurred on software or consumable items (see section 1125),

(c)   

qualifying expenditure on externally provided workers (see

20

section 1127), or

(d)   

incurred on relevant payments to the subjects of a clinical

trial (see section 1140).

(4)   

Condition C is that the expenditure is attributable to relevant

research and development undertaken by the company itself.

25

(5)   

Condition D is that the expenditure is not incurred by the company

in carrying on activities which are contracted out to the company by

any person.

(6)   

See sections 1124, 1126 and 1132 for provision about when

expenditure within subsection (3)(a), (b) or (c) is attributable to

30

relevant research and development.

104H    

Subsidised qualifying expenditure on contracted out R&D

(1)   

A company’s “subsidised qualifying expenditure on contracted out

research and development” means expenditure—

(a)   

which is incurred by it in making the qualifying element of a

35

sub-contractor payment (see sections 1134 to 1136), and

(b)   

in relation to which each of conditions A to E is met.

(2)   

Condition A is that the expenditure is subsidised.

(3)   

Condition B is that the sub-contractor is—

(a)   

a qualifying body,

40

(b)   

an individual, or

(c)   

a firm, each member of which is an individual.

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

244

 

(4)   

Condition C is that the body, individual or firm concerned

undertakes the contracted out research and development itself.

(5)   

Condition D is that the expenditure is attributable to relevant

research and development in relation to the company.

(6)   

Condition E is that the expenditure is not incurred by the company

5

in carrying on activities which are contracted out to the company by

any person.

(7)   

See sections 1124, 1126 and 1132 for provision about when particular

kinds of expenditure are attributable to relevant research and

development.

10

SMEs: capped R&D expenditure

104I    

Capped R&D expenditure

   

For the purposes of this Chapter a company’s “capped R&D

expenditure” means any expenditure—

(a)   

in respect of which the company is not entitled to relief under

15

Chapter 2 of Part 13 merely because of section 1113 (cap on

R&D aid),

(b)   

which is not qualifying expenditure on sub-contracted R&D,

and

(c)   

which would have been qualifying R&D expenditure had the

20

company been a large company throughout the accounting

period in question.

Large companies: qualifying R&D expenditure

104J    

Qualifying expenditure on in-house direct R&D

(1)   

A company’s “qualifying expenditure on in-house direct research

25

and development” means expenditure incurred by it in relation to

which conditions A, B and C are met.

(2)   

Condition A is that the expenditure is—

(a)   

incurred on staffing costs (see section 1123),

(b)   

incurred on software or consumable items (see section 1125),

30

(c)   

qualifying expenditure on externally provided workers (see

section 1127), or

(d)   

incurred on relevant payments to the subjects of a clinical

trial (see section 1140).

(3)   

Condition B is that the expenditure is attributable to relevant

35

research and development undertaken by the company itself.

(4)   

Condition C is that, if the expenditure is incurred in carrying on

activities contracted out to the company, the activities are contracted

out by—

(a)   

a large company, or

40

(b)   

any person otherwise than in the course of carrying on a

chargeable trade.

(5)   

A “chargeable trade” is—

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

245

 

(a)   

a trade, profession or vocation carried on wholly or partly in

the United Kingdom, the profits of which are chargeable to

income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)   

a trade carried on wholly or partly in the United Kingdom,

the profits of which are chargeable to corporation tax under

5

Chapter 2 of this Part.

(6)   

See sections 1124, 1126 and 1132 for provision about when

expenditure within subsection (2)(a), (b) or (c) is attributable to

relevant research and development.

104K    

Qualifying expenditure on contracted out R&D

10

(1)   

A company’s “qualifying expenditure on contracted out research

and development” means expenditure incurred by it in relation to

which each of conditions A to D is met.

(2)   

Condition A is that the expenditure is incurred in making payments

to—

15

(a)   

a qualifying body,

(b)   

an individual, or

(c)   

a firm, each member of which is an individual,

   

in respect of research and development contracted out by the

company to the body, individual or firm concerned (“the contracted

20

out R&D”).

(3)   

Condition B is that the body, individual or firm concerned

undertakes the contracted out R&D itself.

(4)   

Condition C is that the expenditure is attributable to relevant

research and development in relation to the company.

25

(5)   

Condition D is that, if the contracted out R&D is itself contracted out

to the company, it is contracted out by—

(a)   

a large company, or

(b)   

any person otherwise than in the course of carrying on a

chargeable trade.

30

(6)   

A “chargeable trade” is—

(a)   

a trade, profession or vocation carried on wholly or partly in

the United Kingdom, the profits of which are chargeable to

income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)   

a trade carried on wholly or partly in the United Kingdom,

35

the profits of which are chargeable to corporation tax under

Chapter 2 of this Part.

(7)   

See sections 1124, 1126 and 1132 for provision about when particular

kinds of expenditure are attributable to relevant research and

development.

40

104L    

Qualifying expenditure on contributions to independent R&D

(1)   

A company’s “qualifying expenditure on contributions to

independent research and development” means expenditure

incurred by it in relation to which each of conditions A to E is met.

(2)   

Condition A is that the expenditure is incurred in making payments

45

to—

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

246

 

(a)   

a qualifying body,

(b)   

an individual, or

(c)   

a firm, each member of which is an individual,

   

for the purpose of funding research and development carried on by

the body, individual or firm concerned (“the funded R&D”).

5

(3)   

Condition B is that the funded R&D is relevant research and

development in relation to the company.

(4)   

Condition C is that the funded R&D is not contracted out to the

qualifying body, individual or firm concerned by another person.

(5)   

Condition D is that, if the payment is made to an individual, the

10

company is not connected with the individual when the payment is

made.

(6)   

Condition E is that, if the payment is made to a firm (other than a

qualifying body), the company is not connected with any member of

the firm when the payment is made.

15

Amount of credit

104M    

Amount of R&D expenditure credit

(1)   

The amount of the R&D expenditure credit to which a company is

entitled for an accounting period is the relevant percentage of the

amount of the company’s qualifying R&D expenditure for the

20

period.

(2)   

In the case of a ring fence trade, the relevant percentage is 49%.

   

In this subsection “ring fence trade” has the meaning given by

section 277 of CTA 2010.

(3)   

In any other case, the relevant percentage is 10%.

25

(4)   

The Treasury may by order replace the percentage for the time being

specified in subsection (2) or (3) with a different percentage.

(5)   

An order under subsection (4) may contain incidental, supplemental,

consequential and transitional provision and savings.

Payment of credit

30

104N    

Payment of R&D expenditure credit

(1)   

This section applies if a company is entitled to an R&D expenditure

credit for an accounting period under this Chapter.

(2)   

The amount to which the company is entitled in respect of the R&D

expenditure credit (“the set-off amount”) is to be treated in the

35

following way—

   

Step 1

   

The set-off amount is to be applied in discharging any liability of the

company to pay corporation tax for the accounting period.

   

If any of the set-off amount is remaining, go to step 2.

40

   

Step 2

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

247

 

   

If the amount remaining after step 1 is greater than the company’s

total expenditure on workers for the accounting period (see section

104O)—

(a)   

that amount is to be reduced to the amount of that

expenditure (which may be nil), and

5

(b)   

so much of the amount remaining after step 1 as is greater

than the amount of that expenditure is to be treated for the

purposes of this section as an amount of R&D expenditure

credit to which the company is entitled for its next accounting

period.

10

   

If any of the set-off amount is remaining, go to step 3.

   

Step 3

   

The amount remaining after step 2 is to be applied in discharging any

liability of the company to pay corporation tax for any other

accounting period.

15

   

If any of the set-off amount is remaining, go to step 4.

   

Step 4

   

If the company is a member of a group, it may surrender the whole

or any part of the amount remaining after step 3 to any other member

of the group (see section 104Q).

20

   

If no such surrender is made, or any of the set-off amount is

otherwise remaining, go to step 5.

   

Step 5

   

Deduct from the amount remaining after step 4 the following

amounts—

25

(a)   

an amount equal to the corporation tax that would be

chargeable on the amount if it was an amount of profits (or in

the case of a ring fence trade, ring fence profits) of the

company for the accounting period and corporation tax on

such profits was chargeable at the main rate, and

30

(b)   

in the case of a ring fence trade, an amount equal to the

supplementary charge that would be chargeable on the

amount if it was an amount of adjusted ring fence profits for

the accounting period.

   

For provision about the treatment of any amount so deducted, see

35

section 104R.

   

Step 6

   

The amount remaining after step 5 is to be applied in discharging any

other liability of the company to pay a sum to the Commissioners

under or by virtue of an enactment or under a contract settlement.

40

   

If any of the set-off amount is remaining, go to step 7.

   

Step 7

   

The amount remaining after step 6 is payable to the company by an

officer of Revenue and Customs.

   

But this is subject to section 104S (restrictions on payment of R&D

45

expenditure credit).

 
 

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009

248

 

(3)   

In this section—

“adjusted ring fence profits” has the meaning given by section

330(2) of CTA 2010,

“the Commissioners” means the Commissioners for Her

Majesty’s Revenue and Customs,

5

“contract settlement” means an agreement made in connection

with any person’s liability to make a payment to the

Commissioners under or by virtue of an enactment,

“ring fence profits” has the meaning given by section 276 of

CTA 2010, and

10

“ring fence trade” has the meaning given by section 277 of CTA

2010.

104O    

Total expenditure on workers

(1)   

For the purposes of section 104N, the amount of a company’s total

expenditure on workers for an accounting period is the sum of—

15

(a)   

the relevant portion of the company’s staffing costs for the

period (see subsection (2)), and

(b)   

if the company is a member of a group and has incurred

expenditure on any externally provided workers, the

relevant portion of any staffing costs for the period incurred

20

by another member of the group (the “relevant group

company”) in providing any of those workers for the

company (see subsection (3)).

(2)   

The relevant portion of the company’s staffing costs for an

accounting period is the amount of those costs that—

25

(a)   

are paid to, or in respect of, directors or employees who are

directly and actively engaged in relevant research and

development (whether they are wholly or partly so engaged),

and

(b)   

form part of the total amount of the company’s PAYE and

30

NIC liabilities for the accounting period (see section 104P).

(3)   

The relevant portion of any staffing costs for an accounting period

incurred by a relevant group company in providing externally

provided workers for the company is the sum of the amounts to be

determined in the case of each of those workers as follows—

35

   

Step 1

   

Calculate the amount of expenditure that—

(a)   

has been incurred by the relevant group company in

providing the externally provided worker for the company,

(b)   

has been incurred on staffing costs, and

40

(c)   

forms part of the total amount of the relevant group

company’s PAYE and NIC liabilities for the accounting

period (see section 104P).

   

Step 2

   

Calculate the percentage (the “appropriate percentage”) given by—equation: cross[over[char[R],char[T]],num[100.0000000000000000,"100"]]

45

 
 

 
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