House of Commons portcullis
House of Commons
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 1 — Small and medium-sized enterprises: Schedule 20 to Finance Act 2000

    364

 

                             (i)                            the whole of the staff provision payment has been

brought into account in determining the staff

provider’s profit or loss for a relevant period, and

                             (ii)                           all of the staff provider’s relevant expenditure has

been so brought into account,

5

                                             the whole of the payment (up to the amount of the staff provider’s

relevant expenditure) is qualifying expenditure on externally

provided workers.

                           (2)                  In sub-paragraph (1)—

                      (a)                     references to the “relevant expenditure” of the staff

10

provider are to expenditure that—

                             (i)                            is incurred by the staff provider in providing for

the company the externally provided workers to

which the staff provision payment relates,

                             (ii)                           is not of a capital nature, and

15

                             (iii)                          is incurred on staffing costs or agency workers’

remuneration;

                      (b)                     a “relevant period” means a period—

                             (i)                            for which accounts are drawn up for the staff

provider, and

20

                             (ii)                           that ends not more than twelve months after the

end of the company’s period of account in which

the staff provision payment is, in accordance with

generally accepted accounting practice, brought

into account in determining the company’s profit

25

or loss.

                           (3)                  Paragraph 5 (staffing costs) applies for the purposes of

determining whether the staff provider’s expenditure meets the

requirements of sub-paragraph (2)(a)(iii) so far as relating to

staffing costs.

30

                                             For this purpose the references in that paragraph to a company

shall be read as references to the staff provider.

                           (4)                  For the purposes of this Schedule “agency workers’

remuneration”, in the case of any person who is an externally

provided worker in relation to the company, means remuneration

35

receivable by the worker under or in consequence of the contract

mentioned in paragraph 8B(f)—

                      (a)                     that does not constitute employment income of the worker

apart from Chapter 7 of Part 2 of the Income Tax (Earnings

and Pensions) Act 2003 (c. 1) (application of provisions to

40

agency workers), and

                      (b)                     that is not, apart from section 134 of the Taxes Act 1988

(workers supplied by agencies), chargeable to income tax

under Schedule E.

                           (5)                  Any apportionment of expenditure of the company or the staff

45

provider necessary for the purposes of this paragraph shall be

made on a just and reasonable basis.

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 1 — Small and medium-sized enterprises: Schedule 20 to Finance Act 2000

    365

 

Election for connected persons treatment

          8D                 (1)                  The company and the staff provider may in any case jointly elect

that paragraph 8C shall apply to the staff provision payments

made by the company to the staff provider.

                           (2)                  Any such election must be made in relation to all staff provision

5

payments paid under the same contract or arrangement.

                           (3)                  The election must be made by notice in writing given to the Inland

Revenue.

                           (4)                  The notice must be given before the end of the period of two years

beginning with the end of the company’s accounting period in

10

which the contract or other arrangement is entered into.

                           (5)                  An election under this paragraph, once made, is irrevocable.

Treatment of staff provision payment in other cases

          8E                  Where—

                      (a)                     the company makes a staff provision payment,

15

                      (b)                     the company and the staff provider are not connected

persons, and

                      (c)                     no election is made under paragraph 8D,

                            65% of the amount of the staff provision payment is treated as

qualifying expenditure on externally provided workers.”.

20

Qualifying expenditure on sub-contracted R&D: externally provided workers

  7       (1)      Paragraph 10 (treatment of qualifying expenditure on sub-contracted

research and development where company and sub-contractor are

connected persons) is amended as follows.

          (2)      In sub-paragraph (2)(a) (relevant expenditure of sub-contractor) in sub-

25

paragraph (iii) after “on consumable stores” insert “or is qualifying

expenditure on externally provided workers”.

          (3)      For sub-paragraph (3) (which applies paragraphs 5 and 8) substitute—

                           “(3)                  For the purpose of determining whether the sub-contractor’s

expenditure meets the requirements of sub-paragraph (2)(a)(iii)

30

and (iv), the following provisions apply—

                      (a)                     paragraph 5 (staffing costs),

                      (b)                     paragraph 8 (subsidised expenditure), and

                      (c)                     paragraphs 8A to 8E (qualifying expenditure on externally

provided workers),

35

                                             but for that purpose the references in those paragraphs to a

company shall be read as references to the sub-contractor.”.

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 3 — Work sub-contracted to SMEs: Part 2 of Schedule 12 to Finance Act 2002

    366

 

Part 2

Large companies: Part 1 of Schedule 12 to Finance Act 2002

Introductory

  8        Part 1 of Schedule 12 to the Finance Act 2002 (c. 23) (entitlement to R&D

relief: large companies) is amended in accordance with the following

5

provisions of this Part of this Schedule.

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

  9       (1)      Paragraph 1 (entitlement to relief under Part 1 of the Schedule) is amended

as follows.

          (2)      In sub-paragraph (1)(b) (requirement for minimum qualifying R&D

10

expenditure of £25,000 or time apportioned part of that amount) in sub-

paragraphs (i) and (ii) for “£25,000” substitute “£10,000”.

Qualifying expenditure on externally provided workers

  10       In paragraph 4 (qualifying expenditure on direct research and development)

for sub-paragraph (3) (the second condition, that the expenditure is incurred

15

on staffing costs or consumable stores) substitute—

                           “(3)                  The second condition is that the expenditure—

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided

20

workers.”.

Part 3

Work sub-contracted to SMEs: Part 2 of Schedule 12 to Finance Act 2002

Introductory

  11       Part 2 of Schedule 12 to the Finance Act 2002 (entitlement to relief for R&D

25

expenditure: work sub-contracted to small or medium-sized enterprise) is

amended in accordance with the following provisions of this Part of this

Schedule.

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

  12      (1)      Paragraph 7 (entitlement to relief under Part 2 of the Schedule) is amended

30

as follows.

          (2)      In sub-paragraph (1)(b) (requirement for minimum R&D expenditure of

£25,000 or time apportioned part of that amount) in sub-paragraphs (i) and

(ii) for “£25,000” substitute “£10,000”.

Required minimum aggregate expenditure: inclusion of new class of expenditure

35

  13      (1)      Paragraph 7 is also amended as follows.

          (2)      In sub-paragraph (2) (meaning of “aggregate R&D expenditure”) omit the

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 4 — Entitlement of SME to certain relief available to large companies

    367

 

word “and” immediately preceding paragraph (b) and at the end of that

paragraph add “, and

                    (c)                      its qualifying additional SME expenditure (see paragraph

10B).”.

R&D directly undertaken by SME: qualifying expenditure on externally provided workers

5

  14       In paragraph 9 (expenditure on research and development directly

undertaken by SME) for sub-paragraph (2) (the second condition, that the

expenditure must be incurred on staffing costs or consumable stores)

substitute—

                           “(2)                  The second condition is that the expenditure—

10

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided

workers.”.

Part 4

15

Entitlement of SME to certain relief available to large companies

Insertion of Part 2A of Schedule 12 to the Finance Act 2002

  15       After Part 2 of Schedule 12 to the Finance Act 2002 (c. 23) (entitlement to

relief for R&D expenditure: work sub-contracted to small or medium-sized

enterprise) insert the following Part—

20

“Part 2A

Entitlement of SME to additional relief available to large companies

Entitlement to relief under this Part

          10A                 (1)                  A company (“the SME”) is entitled to tax relief under this Part for

an accounting period if—

25

                      (a)                     it qualifies as a small or medium-sized enterprise in that

period, and

                      (b)                     its aggregate R&D expenditure for that period is not less

than—

                             (i)                            £10,000, if the accounting period is a period of 12

30

months, or

                             (ii)                           such amount as bears to £10,000 the same

proportion as the accounting period bears to 12

months.

                           (2)                  Sub-paragraphs (2) and (3) of paragraph 7 (meaning of “aggregate

35

R&D expenditure” and “for an accounting period”) apply for the

purposes of this paragraph as they apply for the purposes of that

paragraph.

                           (3)                  Any relief to which a company is entitled under this Part for an

accounting period is in addition to any relief to which it may be

40

entitled under—

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 5 — Supplementary: amendments to Parts 3 to 6 of Schedule 12 to Finance Act 2002

    368

 

                      (a)                     Schedule 20 to the Finance Act 2000, or

                      (b)                     Part 2 of this Schedule.

Qualifying additional SME expenditure

          10B                  For the purposes of this Schedule, the SME’s “qualifying

additional SME expenditure” is any expenditure which—

5

                      (a)                     had the SME been a large company throughout the

accounting period in question, would have been

qualifying R&D expenditure of that company (see

paragraph 3), but

                      (b)                     is not qualifying R&D expenditure for the purposes of

10

Schedule 20 to the Finance Act 2000 (see paragraph 3 of

that Schedule) in the case of the SME by reason only of

paragraph 3(7) or 10(2)(a)(iv) of that Schedule (subsidised

expenditure, within the meaning given by paragraph 8 of

that Schedule); and

15

                      (c)                     is not qualifying sub-contracted R&D expenditure for the

purposes of this Schedule (see paragraph 8) in the case of

the SME.”.

Part 5

Supplementary: amendments to Parts 3 to 6 of Schedule 12 to Finance Act 2002

20

Introductory

  16       Parts 3 to 6 of Schedule 12 to the Finance Act 2002 (c. 23) are amended in

accordance with the following provisions of this Part of this Schedule.

Deduction in computing profits of trade

  17      (1)      Paragraph 11 is amended as follows.

25

          (2)      In sub-paragraph (1) (application of paragraph) for “Part 1 or 2” substitute

“Part 1, 2 or 2A”.

          (3)      In sub-paragraph (3) (meaning of “qualifying expenditure”) omit the word

“and” immediately preceding paragraph (b) and at the end of that

paragraph insert “, and

30

                    (c)                      in the case of relief under Part 2A, qualifying additional SME

expenditure (see paragraph 10B).”.

Refunds of contributions to independent research and development

  18       In paragraph 15(1) (refunds of certain payments) omit the word “or”

immediately preceding paragraph (c) and at the end of that paragraph insert

35

“, or

                    (d)                      any expenditure which is qualifying additional SME

expenditure,”.

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 6 — Expenditure on vaccine research etc: Schedule 13 to Finance Act 2002

    369

 

Meaning of “qualifying expenditure on externally provided workers”

  19      (1)      Paragraph 17 (which applies certain definitions from Schedule 20 to the

Finance Act 2000 (c. 17)) is amended as follows.

          (2)      Omit the word “and” immediately preceding paragraph (c).

          (3)      At the end of paragraph (c) add “; and

5

                    (d)                      paragraphs 8A to 8E (qualifying expenditure on externally

provided workers).”.

          (4)      The heading to the paragraph accordingly becomes—

“Meaning of “relevant research and development”, “staffing costs”, “consumable

stores” and “qualifying expenditure on externally provided workers””.

10

Part 6

Expenditure on vaccine research etc: Schedule 13 to Finance Act 2002

Introductory

  20       Schedule 13 to the Finance Act 2002 (c. 23) (tax relief for expenditure on

vaccine research etc) is amended in accordance with the following

15

provisions of this Part of this Schedule.

Reduction of required  qualifying expenditure from £25,000 to £10,000

  21      (1)      Paragraph 1 (entitlement to relief under the Schedule) is amended as

follows.

          (2)      In sub-paragraph (1) (requirement for minimum qualifying expenditure of

20

£25,000 or time apportioned part of that amount) in paragraphs (a) and (b)

for “£25,000” substitute “£10,000”.

Direct research and development: qualifying expenditure on externally provided workers

  22       In paragraph 3 (qualifying expenditure on direct research and development)

for sub-paragraph (5) (the fourth condition, that the expenditure is incurred

25

on staffing costs or consumable stores) substitute—

                           “(5)                  The fourth condition is that the expenditure—

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided

30

workers.”.

Meaning of “qualifying expenditure on externally provided workers”

  23      (1)      Paragraph 5(3) (which applies certain definitions in Schedule 20 to the

Finance Act 2000) is amended as follows.

          (2)      Omit the word “and” immediately preceding paragraph (d).

35

          (3)      In paragraph (d), for “(subsidised expenditure),” substitute “(subsidised

expenditure); and”.

 

 

Finance Bill
Schedule 32 — Tonnage tax: restrictions on capital allowances for lessors of ships

    370

 

          (4)      After paragraph (d) insert the following paragraph—

                    “(e)                      paragraphs 8A to 8E (qualifying expenditure on externally

provided workers),”.

          (5)      The heading to paragraph 5 accordingly becomes—

“Meaning of “relevant R&D”, “small or medium-sized enterprise”, “staffing

5

costs”, “consumable stores”, “subsidised” and “qualifying expenditure on

externally provided workers”.

Relevant expenditure of sub-contractor: qualifying expenditure on externally provided workers

  24       In paragraph 9 (relevant expenditure of sub-contractor) for sub-paragraph

(3) (the second condition, that the expenditure must be incurred on staffing

10

costs or consumable stores) substitute—

                           “(3)                  The second condition is that the expenditure—

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided workers.

15

                                             In applying for the purposes of this sub-paragraph (by virtue of

paragraph 5 above)—

                      (a)                     paragraph 5 of Schedule 20 to the Finance Act 2000

(meaning of “staffing costs”), or

                      (b)                     paragraphs 8A to 8E of that Schedule (qualifying

20

expenditure on externally provided workers),

                                             the references to the company shall be read as references to the

sub-contractor.”.

Schedule 32

Section 168

 

Tonnage tax: restrictions on capital allowances for lessors of ships

25

The ring fence: amendments to the provisions about capital allowances and ship leasing

  1       (1)      In Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax), Part 10 (the ring

fence: capital allowances: ship leasing) is amended as follows.

          (2)      Omit the word “finance” from the expression “finance lease” in paragraphs

89(1), 90(1), 92(1), 93(1), 94(1), 98(1)(a) and 99(1)(a).

30

          (3)      At the end of sub-paragraph (1) of paragraph 89 (introduction to Part 10)

insert—

                                     “This is subject to paragraph 89A (exception for ordinary charters).”.

          (4)      For sub-paragraph (2) of that paragraph substitute—

                           “(2)                  In this Part of this Schedule “lease” means any arrangements that

35

provide for a ship to be leased or otherwise made available by a

person (“the lessor”) to another person (“the lessee”).”.

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2003
Revised 16 April 2003