Finance Bill

Session 2013 - 14
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Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
249


where—
R is the amount of the company’s qualifying expenditure on the
externally provided worker that has been taken into account
in calculating the amount of the company’s qualifying R&D
expenditure for the period, and
5
T is the total amount of the company’s qualifying expenditure
on the externally provided worker.

Step 3

The amount to be determined in the case of the externally provided
worker is the appropriate percentage of the amount given by step 1.
10
104P
Total amount of company’s PAYE and NIC liabilities
(1)
For the purposes of section 104O the total amount of a company’s
PAYE and NIC liabilities for an accounting period is the sum of—
(a)
amount A, and
(b)
amount B.
15
(2)
Amount A is the total amount of income tax for which the company
is required to account to an officer of Revenue and Customs under
PAYE regulations for the accounting period.
(3)
In calculating amount A disregard any deduction the company is
authorised to make in respect of child tax credit or working tax
20
credit.
(4)
Amount B is the total amount of Class 1 national insurance
contributions for which the company is required to account to an
officer of Revenue and Customs for the accounting period.
(5)
In calculating amount B disregard any deduction the company is
25
authorised to make in respect of payments of statutory sick pay,
statutory maternity pay, child tax credit or working tax credit.
(6)
In a case where the company is required to account for any amount
of income tax or Class 1 national insurance contributions for a
payment period that does not fall wholly within the accounting
30
period, the portion of that amount to be included in the total amount
of the company’s PAYE and NIC liabilities for the accounting period
is to be determined on such basis as is just and reasonable in all the
circumstances.
104Q
Surrender of credit to other group companies
35
(1)
This section applies if—
(a)
a company is entitled to an R&D expenditure credit under
this Chapter for an accounting period (“the surrender
period”), and
(b)
the company surrenders the whole or any part of the credit to
40
another member of the group (the “relevant group member”)
under step 4 in section 104N(2).
(2)
In this section an accounting period of a relevant group member is a
“relevant accounting period” if there is a period (“the overlapping
period”) that is common to the accounting period and the surrender
45
period.

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
250

(3)
The amount surrendered is to be applied in discharging any liability
of the relevant group member to pay corporation tax for any relevant
accounting period as follows—

Step 1

Take the proportion of the relevant accounting period included in
5
the overlapping period.

Apply that proportion to the amount of corporation tax payable by
the relevant group member for the relevant accounting period.

Step 2

Take the proportion of the surrender period included in the
10
overlapping period.

Apply that proportion to the amount surrendered to the relevant
group member.

Step 3

The amount given by step 2 is to be applied in discharging the
15
amount given by step 1.
(4)
If any of the amount surrendered is remaining after the operation of
step 3 in subsection (3), it is to be treated for the purposes of section
104N as if it had not been surrendered to the relevant group member.
(5)
The surrender by a company of the whole or any part of an R&D
20
expenditure credit to another company under step 4 in section
104N(2)—
(a)
is not to be taken into account in determining the profits or
losses of either company for corporation tax purposes, and
(b)
for corporation tax purposes is not to be regarded as the
25
making of a distribution.
104R
Payment of credit net of tax
(1)
This section applies if—
(a)
a company is entitled to an R&D expenditure credit for an
accounting period under this Chapter, and
30
(b)
an amount (“the step 5 amount”) is deducted in respect of the
credit under step 5 in section 104N(2).
(2)
The step 5 amount is to be applied in discharging any liability of the
company to pay corporation tax for any subsequent accounting
period.
35

This is subject to subsection (3).
(3)
If the company is a member of a group, it may surrender the whole
or any part of the step 5 amount to any other member of the group
(the “relevant group member”).

In such a case, section 104Q(3) applies to the amount surrendered as
40
it applies to an amount of R&D expenditure credit surrendered
under step 4 in section 104N(2).
(4)
If any of the amount surrendered under subsection (3) is remaining
after the operation of step 3 in section 104Q(3), it is to be treated for
the purposes of section 104N as if it had not been surrendered to the
45
relevant group member.

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
251

(5)
Any amounts to be applied under subsection (2) or (3) in discharging
any liability of a company to pay corporation tax for an accounting
period are to be so applied before any amounts that may be so
applied under step 1, 3 or 4 in section 104N(2).
(6)
The surrender by a company of the whole or any part of the step 5
5
amount to another company under this section—
(a)
is not to be taken into account in determining the profits or
losses of either company for corporation tax purposes, and
(b)
for corporation tax purposes is not to be regarded as the
making of a distribution.
10
104S
Restrictions on payment of R&D expenditure credit
(1)
This section applies if—
(a)
a company is entitled to an R&D expenditure credit for an
accounting period under this Chapter, and
(b)
an amount of the R&D expenditure credit is payable to the
15
company under step 7 of section 104N(2).
(2)
If at the time of claiming the credit the company was not a going
concern (see section 104T)—
(a)
the company is not entitled to be paid that amount, and
(b)
that amount is extinguished.
20
(3)
But if the company becomes a going concern on or before the last day
on which an amendment of the company’s tax return for the
accounting period could be made under paragraph 15 of Schedule 18
to FA 1998, the company is entitled to be paid that amount.
(4)
If the company’s tax return for the accounting period is enquired into
25
by an officer of Revenue and Customs—
(a)
no payment of that amount need be made before the officer’s
enquiries are completed (see paragraph 32 of Schedule 18 to
FA 1998), but
(b)
the officer may make a payment on a provisional basis of
30
such amount as the officer thinks fit.
(5)
No payment of that amount need be made if the company has
outstanding PAYE and NIC liabilities for the period.
(6)
A company has outstanding PAYE and NIC liabilities for an
accounting period if it has not paid to an officer of Revenue and
35
Customs any amount that it is required to pay—
(a)
under PAYE regulations, or
(b)
in respect of Class 1 national insurance contributions,

for payment periods ending in the accounting period.
104T
“Going concern”
40
(1)
For the purposes of section 104S(2) and (3) 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
45
prepared on that basis because of an expectation that the

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
252

company would receive R&D expenditure credits under this
Chapter.

This is subject to subsection (2).
(2)
A company is not a going concern at any time if it is in administration
or liquidation at that time.
5
(3)
For the purposes of this section a company is in administration if—
(a)
it is in administration under Part 2 of the Insolvency Act 1986
or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I.
1989/2405 (N.I. 19)), or
(b)
a corresponding situation under the law of a country or
10
territory outside the United Kingdom exists in relation to the
company.
(4)
For the purposes of this section a company is in liquidation if—
(a)
it is in liquidation within the meaning of section 247 of that
Act or Article 6 of that Order, or
15
(b)
a corresponding situation under the law of a country or
territory outside the United Kingdom exists in relation to the
company.
(5)
Section 436(2) of the Companies Act 2006 (meaning of “publication”
of documents) has effect for the purposes of this section.
20
Insurance companies
104U
Insurance companies treated as large companies
(1)
This section applies if an insurance company—
(a)
carries on life assurance business in an accounting period,
and
25
(b)
is a small or medium-sized enterprise in the period.
(2)
For the purposes of this Chapter the company is to be treated as if it
were not such an enterprise in the period (and accordingly is to be
treated as a large company for the purposes of this Chapter).
(3)
Section 1119 (meaning of “small or medium-sized enterprise”), as it
30
has effect for the purposes of this Chapter (see section 104Y), is to be
read subject to this section.
104V
Entitlement to credit: I minus E basis
(1)
This section applies if—
(a)
for an accounting period, an insurance company is charged to
35
tax in respect of its basic life assurance and general annuity
business in accordance with the I-E rules, and
(b)
the calculation of the company’s charge to tax for the period
in respect of that business does not involve the calculation of
any BLAGAB trade profit or loss of the company.
40
(2)
Section 104A has effect as if—
(a)
the reference in subsection (1) to calculating the profits of a
trade were a reference to calculating the I-E profit of the basic
life assurance and general annuity business carried on by the
company, and
45

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
253

(b)
the reference in subsection (2) to qualifying R&D expenditure
allowable as a deduction in calculating the profits of a trade
for an accounting period were a reference to any such
expenditure that would be allowable as such a deduction if
the company were to calculate its BLAGAB trade profit or
5
loss for the period.
(3)
Any receipt to be brought into account by virtue of this section is to
be treated for the purposes of section 92 of FA 2012 (certain BLAGAB
trading receipts to count as deemed I-E receipts) as if it had been
taken into account in calculating the company’s BLAGAB trade
10
profit or loss for the period.
(4)
In this section “BLAGAB trade profit” and “BLAGAB trade loss”
have the meaning given by section 136 of FA 2012.
Group companies
104W
R&D expenditure of group companies
15
(1)
This section applies if—
(a)
a company (“A”) incurs expenditure on making a payment to
another company (“B”) in respect of activities contracted out
by A to B,
(b)
the activities would, if carried out by A, be research and
20
development of A (taken together with A’s other activities),
and
(c)
A and B are members of the same group at the time the
payment is made.
(2)
If the activities are undertaken by B itself, they are to be treated for
25
the purposes of this Chapter (so far as it would not otherwise be the
case) as research and development undertaken by B itself.
(3)
If B makes a payment to a third party (“C”), any of the activities—
(a)
contracted out by B to C, and
(b)
undertaken by C itself,
30

are to be treated for the purposes of this Chapter (so far as it would
not otherwise be the case) as research and development contracted
out by B to C.
Anti-avoidance
104X
Artificially inflated claims for credit
35
(1)
To the extent that a transaction is attributable to arrangements
entered into wholly or mainly for a disqualifying purpose, it is to be
disregarded for the purpose of determining for an accounting period
R&D expenditure credits to which a company is entitled under this
Chapter.
40
(2)
Arrangements are entered into wholly or mainly for a “disqualifying
purpose” if their main object, or one of their main objects, is to enable
a company to obtain—
(a)
an R&D expenditure credit under this Chapter to which it
would not otherwise be entitled, or
45

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
254

(b)
an R&D expenditure credit under this Chapter of a greater
amount than that to which it would otherwise be entitled.
(3)
In this section “arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.
Interpretation
5
104Y
Interpretation
(1)
In this Chapter the following terms have the same meaning as they
have in Part 13 (additional relief for expenditure on R&D)—

“large company” (see section 1122),

“payment period” (see section 1141),
10

“qualifying body” (see section 1142),

“relevant research and development” (see section 1042),

“research and development” (see section 1041),

“small or medium-sized enterprise” (see section 1119).
(2)
The following sections apply for the purposes of this Chapter as they
15
apply for the purposes of Part 13—

sections 1123 and 1124 (staffing costs),

sections 1125 and 1126 (software or consumable items),

sections 1127 to 1132 (qualifying expenditure on externally
provided workers),
20

sections 1133 to 1136 (sub-contractor payments),

section 1138 (“subsidised expenditure”),

section 1140 (relevant payments to the subjects of a clinical
trial).
(3)
For the purposes of this Chapter two companies are members of the
25
same group if they are members of the same group of companies for
the purposes of Part 5 of CTA 2010 (group relief).”
2     (1)
Part 13 of CTA 2009 (additional relief for expenditure on research and
development) is amended as follows.
      (2)
After section 1040 (and before the cross-heading “Interpretation”) insert—
30
“1040A
R&D expenditure credits
(1)
For provision enabling a company carrying on a trade to make a
claim for an amount in respect of expenditure on research and
development (an “R&D expenditure credit”) to be brought into
account as a receipt in calculating the profits of the trade for an
35
accounting period, see Chapter 6A of Part 3.
(2)
For provision prohibiting a company from making a claim for an
R&D expenditure credit and for relief under this Part in respect of the
same expenditure, see section 104B.”
      (3)
In section 1138 (meaning of “subsidised expenditure”), in subsection (3),
40
omit the “and” at the end of paragraph (a) and after paragraph (b) insert—
“(c)
R&D expenditure credits under Chapter 6A of Part 3.”
3
In Schedule 4 to CTA 2009 (index of defined expressions), at the appropriate

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
255

place insert—

“capped R&D
section 104I”;

expenditure (in Chapter

6A of Part 3)

“large company (in
section 1122 (as applied

5

Chapter 6A of Part 3)
by section 104Y)”;

“payment period (in
section 1141 (as applied

Chapter 6A of Part 3)
by section 104Y)”;

“qualifying body (in
section 1142 (as applied

Chapter 6A of Part 3)
by section 104Y)”;

10

“qualifying expenditure
section 104C”;

on sub-contracted R&D

(in Chapter 6A of Part 3)

“qualifying R&D
section 104A”;

expenditure (in Chapter

15

6A of Part 3)

“relevant payment to the
section 1140 (as applied

subject of a clinical trial
by section 104Y)”;

(in Chapter 6A of Part 3)

“relevant research and
section 1042 (as applied

20

development (in Chapter
by section 104Y)”;

6A of Part 3)

“research and
section 1041 (as applied

development (in Chapter
by section 104Y)”;

6A of Part 3)

25

“small or medium-sized
section 1119 (as applied

enterprise (in Chapter 6A
by section 104Y)”;

of Part 3)

“software or consumable
section 1125 (as applied

items (in Chapter 6A of
by section 104Y)”;

30

Part 3)

“staffing costs (in
section 1123 (as applied

Chapter 6A of Part 3)
by section 104Y)”;

“subsidised qualifying
section 104F”.

expenditure (in Chapter

35

6A of Part 3)