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Schedule 31 | |
Section 167 | |
Tax relief for expenditure on research and development | |
Part 1 | |
Small and medium-sized enterprises: Schedule 20 to Finance Act 2000 | |
Introductory | 5 |
1 Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on | |
research and development by small and medium-sized enterprises) 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 | 10 |
2 (1) Paragraph 1 (entitlement to R&D tax relief) is amended as follows. | |
(2) In sub-paragraph (1)(b) (requirement for minimum aggregate 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 | 15 |
3 (1) Paragraph 1 is also amended as follows. | |
(2) In sub-paragraph (1)(b) (requirement for minimum aggregate | |
expenditure)— | |
(a) for “paragraph 3) and” substitute “paragraph 3),”; and | |
(b) after “Finance Act 2002)” insert “and its qualifying additional SME | 20 |
expenditure (as defined in paragraph 10B of that Schedule)”. | |
(3) In sub-paragraph (3A) (meaning of “deductible” in relation to qualifying | |
sub-contracted R&D expenditure)— | |
(a) after “(1)(b)” insert “, each of the following— | |
(a)”; | 25 |
(b) after “Finance Act 2002)” insert “, and”; and | |
(c) after the paragraph (a) so formed, insert the following paragraph— | |
“(b) a company’s qualifying additional SME expenditure | |
(as defined in paragraph 10B of that Schedule),”. | |
Qualifying R&D expenditure: expenditure on externally provided workers | 30 |
4 In paragraph 3 (qualifying R&D expenditure) for sub-paragraph (4) (the | |
third condition, that the expenditure is incurred on staffing costs or | |
consumable stores or is qualifying expenditure on sub-contracted research | |
and development) substitute— | |
“(4) The third condition is that the expenditure— | 35 |
(a) is incurred on staffing costs (see paragraph 5), | |
(b) is incurred on consumable stores (see paragraph 6), | |
(c) is qualifying expenditure on externally provided workers | |
(see paragraphs 8A to 8E), or | |
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(d) is qualifying expenditure on sub-contracted research and | |
development (see paragraphs 9 to 12).”. | |
Staffing costs: persons partly engaged directly and actively in relevant R&D | |
5 (1) In paragraph 5 (staffing costs) sub-paragraph (3) (person partly engaged in | |
relevant research and development) is amended as follows. | 5 |
(2) In the opening words, omit “the following rules apply”. | |
(3) Omit paragraphs (a) and (b) (person spending less than 20% or more than | |
80%of total working time on relevant research and development). | |
(4) In paragraph (c), omit “in any other case,”. | |
Qualifying expenditure on externally provided workers | 10 |
6 After paragraph 8 (subsidised expenditure) insert— | |
“Qualifying expenditure on externally provided workers | |
8A (1) The provisions of paragraphs 8C to 8E have effect for determining | |
the amount of the qualifying expenditure of a company (“the | |
company”) on externally provided workers. | 15 |
(2) The provisions of sub-paragraphs (4) to (6) have effect for | |
determining how much of any such expenditure is attributable to | |
relevant research and development. | |
(3) For the purposes of this Schedule the company incurs expenditure | |
on externally provided workers if it makes a payment (a “staff | 20 |
provision payment”) to another person (the “staff provider”) in | |
respect of the supply to the company, by or through the staff | |
provider, of the services of any externally provided workers. | |
(4) Qualifying expenditure on externally provided workers is | |
attributable to relevant research and development if the externally | 25 |
provided workers are directly and actively engaged in such | |
research and development. | |
(5) In the case of any externally provided worker partly engaged | |
directly and actively in relevant research and development, an | |
appropriate proportion of the qualifying expenditure relating to | 30 |
him is treated as attributable to the relevant research and | |
development. | |
(6) For the purposes of sub-paragraphs (4) and (5) persons who | |
provide services, such as secretarial or administrative services, in | |
support of activities carried on by others, are not, by virtue of | 35 |
providing those services, to be treated as themselves directly and | |
actively engaged in those activities. | |
Meaning of “externally provided worker” | |
8B For the purposes of this Schedule a person is an “externally | |
provided worker” in relation to the company if the following | 40 |
conditions are satisfied— | |
(a) he is an individual, | |
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(b) he is not a director or employee of the company, | |
(c) he personally provides, or is under an obligation | |
personally to provide, services to the company, | |
(d) he is subject to (or to the right of) supervision, direction or | |
control by the company as to the manner in which those | 5 |
services are provided, | |
(e) his services are supplied to the company by or through the | |
staff provider (whether or not he is a director or employee | |
of the staff provider or of any other person), | |
(f) he provides, or is under an obligation to provide, those | 10 |
services personally to the company under the terms of a | |
contract between him and the staff provider, | |
(g) the provision of those services does not constitute the | |
carrying on of activities contracted out by the company. | |
Treatment of expenditure where company and staff provider are connected persons | 15 |
8C (1) Where— | |
(a) the company and the staff provider are connected persons, | |
and | |
(b) in accordance with generally accepted accounting | |
practice— | 20 |
(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, | 25 |
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 | 30 |
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 | 35 |
(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 | 40 |
(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 | 45 |
or loss. | |
(3) Paragraph 5 (staffing costs) applies for the purposes of | |
determining whether the staff provider’s expenditure meets the | |
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requirements of sub-paragraph (2)(a)(iii) so far as relating to | |
staffing costs. | |
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’ | 5 |
remuneration”, in the case of any person who is an externally | |
provided worker in relation to the company, means remuneration | |
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 | 10 |
apart from Chapter 7 of Part 2 of the Income Tax (Earnings | |
and Pensions) Act 2003 (c. 1) (application of provisions to | |
agency workers), and | |
(b) that is not, apart from section 134 of the Taxes Act 1988 | |
(workers supplied by agencies), chargeable to income tax | 15 |
under Schedule E. | |
(5) Any apportionment of expenditure of the company or the staff | |
provider necessary for the purposes of this paragraph shall be | |
made on a just and reasonable basis. | |
Election for connected persons treatment | 20 |
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 | |
payments paid under the same contract or arrangement. | 25 |
(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 | |
which the contract or other arrangement is entered into. | 30 |
(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, | |
(b) the company and the staff provider are not connected | 35 |
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.”. | |
Qualifying expenditure on sub-contracted R&D: externally provided workers | 40 |
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. | |
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(2) In sub-paragraph (2)(a) (relevant expenditure of sub-contractor) in sub- | |
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 | 5 |
expenditure meets the requirements of sub-paragraph (2)(a)(iii) | |
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 | 10 |
provided workers), | |
but for that purpose the references in those paragraphs to a | |
company shall be read as references to the sub-contractor.”. | |
Part 2 | |
Large companies: Part 1 of Schedule 12 to Finance Act 2002 | 15 |
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 | |
provisions of this Part of this Schedule. | |
Required minimum aggregate expenditure: reduction from £25,000 to £10,000 | 20 |
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 | |
expenditure of £25,000 or time apportioned part of that amount) in sub- | |
paragraphs (i) and (ii) for “£25,000” substitute “£10,000”. | 25 |
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 | |
on staffing costs or consumable stores) substitute— | |
“(3) The second condition is that the expenditure— | 30 |
(a) is incurred on staffing costs, | |
(b) is incurred on consumable stores, or | |
(c) is qualifying expenditure on externally provided | |
workers.”. | |
Part 3 | 35 |
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 | |
expenditure: work sub-contracted to small or medium-sized enterprise) is | |
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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 | |
as follows. | 5 |
(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 | |
13 (1) Paragraph 7 is also amended as follows. | 10 |
(2) In sub-paragraph (2) (meaning of “aggregate R&D expenditure”) omit the | |
word “and” immediately preceding paragraph (b) and at the end of that | |
paragraph add “, and | |
(c) its qualifying additional SME expenditure (see paragraph | |
10B).”. | 15 |
R&D directly undertaken by SME: qualifying expenditure on externally provided workers | |
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— | 20 |
“(2) 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.”. | 25 |
Part 4 | |
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 | 30 |
enterprise) insert the following Part— | |
“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 | 35 |
an accounting period if— | |
(a) it qualifies as a small or medium-sized enterprise in that | |
period, and | |
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(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 | |
months, or | |
(ii) such amount as bears to £10,000 the same | 5 |
proportion as the accounting period bears to 12 | |
months. | |
(2) Sub-paragraphs (2) and (3) of paragraph 7 (meaning of “aggregate | |
R&D expenditure” and “for an accounting period”) apply for the | |
purposes of this paragraph as they apply for the purposes of that | 10 |
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 | |
entitled under— | |
(a) Schedule 20 to the Finance Act 2000, or | 15 |
(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— | |
(a) had the SME been a large company throughout the | 20 |
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 | |
Schedule 20 to the Finance Act 2000 (see paragraph 3 of | 25 |
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 | |
(c) is not qualifying sub-contracted R&D expenditure for the | 30 |
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 | |
Introductory | 35 |
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. | |
(2) In sub-paragraph (1) (application of paragraph) for “Part 1 or 2” substitute | 40 |
“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 | |
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