Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 14 — R&D expenditure credits
Part 1 — Amendments of CTA 2009
244

(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
15
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.
25
(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
35
(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
245

(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
246

(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
247

(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
248

(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
249


If the amount remaining after step 1 is greater than the net value of
the set-off amount (see subsection (3)), that amount is to be reduced
to the net value of the set-off amount.

For provision about the treatment of the amount deducted under this
step from the amount remaining after step 1, see section 104O.
5

Step 3

If the amount remaining after step 2 is greater than the company’s
total expenditure on workers for the accounting period (see section
104P)—
(a)
that amount is to be reduced to the amount of that
10
expenditure (which may be nil), and
(b)
the amount deducted under paragraph (a) from the amount
remaining after step 2 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.
15

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

Step 4

The amount remaining after step 3 is to be applied in discharging any
liability of the company to pay corporation tax for any other
accounting period.
20

If any of the set-off amount is remaining, go to step 5.

Step 5

If the company is a member of a group, it may surrender the whole
or any part of the amount remaining after step 4 to any other member
of the group (see section 104R).
25

If no such surrender is made, or any of the set-off amount is
otherwise remaining, go to step 6.

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
30
under or by virtue of an enactment or under a contract settlement.

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.
35

But this is subject to section 104S (restrictions on payment of R&D
expenditure credit).
(3)
To determine the net value of the set-off amount for the purposes of
step 2 in subsection (2), deduct from the set-off amount amount A
and, in the case of a ring fence trade, amount B.
40

Amount A is the amount equal to the corporation tax that would be
chargeable on the set-off amount if—
(a)
it did not include any amount treated as an amount of R&D
expenditure credit for the accounting period by virtue of step
3 in subsection (2), and
45

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

(b)
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.

Amount B is the amount equal to the supplementary charge that
5
would be chargeable on the set-off amount if—
(a)
it did not include any amount treated as an amount of R&D
expenditure credit for the accounting period by virtue of step
3 in subsection (2), and
(b)
it was an amount of adjusted ring fence profits for the
10
accounting period.
(4)
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
15
Majesty’s Revenue and Customs,
“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
20
CTA 2010, and
“ring fence trade” has the meaning given by section 277 of CTA
2010.
104O
Amounts deducted by way of tax adjustment
(1)
This section applies if—
25
(a)
a company is entitled to an R&D expenditure credit for an
accounting period under this Chapter, and
(b)
the amount of the set-off amount remaining after step 1 in
section 104N(2) is greater than the net value of the set-off
amount.
30
(2)
An amount equal to the difference between—
(a)
the amount remaining after step 1 in section 104N(2), and
(b)
the net value of the set-off amount,

(“the step 2 amount”) is to be applied in discharging any liability of
the company to pay corporation tax for any subsequent accounting
35
period.

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 2 amount to any other member of the group
(the “relevant group member”).
40

In such a case, section 104R(3) applies to the amount surrendered as
it applies to an amount of R&D expenditure credit surrendered
under step 5 in section 104N(2).
(4)
If any of the amount surrendered under subsection (3) is remaining
after the operation of step 3 in section 104R(3), it is to be treated for
45
the purposes of this section as if it had not been surrendered to the
relevant group member.