Finance Bill

House of Commons

Session 2007 - 08
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 9 — Companies in difficulty: SME R&D relief and vaccine research relief
207

      (2)
In paragraph 13 (deduction in computing profits of trade), insert at the end
“(subject to paragraph 18A)”.
      (3)
In paragraph 14(2) (alternative treatment of pre-trading expenditure), insert
at the end “(subject to paragraph 18A)”.
      (4)
In paragraph 15(1) (entitlement to R&D tax credit), insert at the end “(subject
5
to paragraph 18A)”.
      (5)
In paragraph 18 (payment in respect of R&D tax credit) insert at the end—
    “(5)
This paragraph has effect subject to paragraph 18A.”
      (6)
After that paragraph insert—
“R&D tax relief or tax credit only available where company is a going concern
10
18A   (1)
A company may only make—
(a)
a claim under paragraph 13,
(b)
an election under paragraph 14, or
(c)
a claim under paragraph 15,

at a time when it is a going concern.
15
      (2)
If a company ceases to be a going concern after making a claim for
an R&D tax credit under paragraph 15, it shall be treated as if it
had not made the claim (and, accordingly, as if there had been no
payment of R&D tax credit to carry interest under section 826 of
the Taxes Act 1988).
20
      (3)
Sub-paragraph (2) does not apply to the extent that the claim
relates to an amount that was paid or applied before the company
ceased to be a going concern.
      (4)
For the purposes of this paragraph, a company is a going concern
if—
25
(a)
its latest published accounts were prepared on a going
concern basis, and
(b)
nothing in those accounts indicates that they were only
prepared on that basis because of an expectation that the
company would receive relief or tax credits under this
30
Schedule or Schedule 13 to the Finance Act 2002.
      (5)
Section 436(2) of the Companies Act 2006 (meaning of
“publication” of documents) has effect for the purposes of this
paragraph.”
Vaccine research relief
35
2     (1)
Schedule 13 to FA 2002 (tax relief for expenditure on vaccine research etc) is
amended as follows.
      (2)
In paragraph 14(1) (deduction in computing profits of trade), insert at the
end “(subject to paragraph 18A)”.
      (3)
In paragraph 15(1) (alternative treatment of pre-trading expenditure:
40
deemed trading loss), insert at the end “(subject to paragraph 18A)”.

Finance Bill
Schedule 9 — Companies in difficulty: SME R&D relief and vaccine research relief
208

      (4)
In paragraph 16(1) (entitlement to tax credit), insert at the end “(subject to
paragraph 18A)”.
      (5)
In paragraph 18 (payment in respect of tax credit) insert at the end—
    “(5)
This paragraph has effect subject to paragraph 18A.”
      (6)
After that paragraph insert—
5
“Relief or tax credit only available where company is a going concern
18A   (1)
A company may only make—
(a)
a claim under paragraph 14,
(b)
an election under paragraph 15, or
(c)
a claim under paragraph 16,
10

at a time when it is a going concern.
      (2)
If a company ceases to be a going concern after making a claim for
a tax credit under paragraph 16, it shall be treated as if it had not
made the claim (and, accordingly, as if there had been no payment
of tax credit to carry interest under section 826 of the Taxes Act
15
1988).
      (3)
Sub-paragraph (2) does not apply to the extent that the claim
relates to an amount that was paid or applied before the company
ceased to be a going concern.
      (4)
For the purposes of this paragraph, a company is a going concern
20
if—
(a)
its latest published accounts were prepared on a going
concern basis, and
(b)
nothing in those accounts indicates that they were only
prepared on that basis because of an expectation that the
25
company would receive relief or tax credits under this
Schedule or Schedule 20 to the Finance Act 2000.
      (5)
Section 436(2) of the Companies Act 2006 (meaning of
“publication” of documents) has effect for the purposes of this
paragraph.”
30
Commencement
3
The amendments made by this Schedule have effect in relation to claims and
elections made, and amounts paid or applied, on or after such day as the
Treasury may by order appoint.

Finance Bill
Schedule 10 — Cap on R&D aid
Part 1 — Calculation of total R&D aid
209

Schedule 10
Section 26

Cap on R&D aid
Part 1
Calculation of total R&D aid
Calculation of total R&D aid
5
1
For the purposes of section 26, “total R&D aid”, in respect of expenditure by
a company (the “claimant”) attributable to a research and development
project, is calculated as follows—

where—
A is total R&D aid,
10
TC is the tax credits (see paragraph 2),
R is the actual reduction in tax liability (see paragraph 3),
P is the potential relief (see paragraph 4),
CT is the main rate of corporation tax at the time when the total R&D
aid is calculated, and
15
N is the notional relief (see paragraph 5).
2     (1)
In paragraph 1 “the tax credits” means the aggregate of the tax credits that
have been paid to the claimant under paragraph 18 of Schedule 20 to FA
2000 or paragraph 18 of Schedule 13 to FA 2002 in respect of expenditure
attributable to the project.
20
      (2)
A tax credit that has been claimed but not paid or applied shall be treated for
the purposes of sub-paragraph (1) as if it had been paid, unless the claimant
has been informed by Her Majesty’s Revenue and Customs that the tax
credit will not be paid or applied.
3
In paragraph 1 “the actual reduction in tax liability” means the aggregate
25
of—
(a)
the amounts by which the liability of the claimant to pay corporation
tax has been reduced in any accounting period in consequence of
R&D relief in respect of expenditure attributable to the project, and
(b)
the amounts by which the liability of any other company to pay
30
corporation tax has been reduced in any accounting period in
consequence of a surrender to the company by the claimant under
section 402 of ICTA (surrender of relief between members of groups
and consortia) of a loss arising in consequence of R&D relief in
respect of expenditure attributable to the project.
35
4     (1)
In paragraph 1 “the potential relief” means the aggregate amount of any
R&D relief (other than a tax credit)—
(a)
in respect of which the claimant has made a claim or election, but
(b)
which, as at the day on which the total R&D aid is calculated, has not
been brought into account by the claimant or by any other company.
40
      (2)
R&D relief shall not be counted for the purposes of sub-paragraph (1) if the
claimant has been informed by Her Majesty’s Revenue and Customs that it
is not entitled to the relief.

Finance Bill
Schedule 10 — Cap on R&D aid
Part 2 — Consequential amendments
210

5     (1)
In paragraph 1 “the notional relief” is the aggregate amount of relief that the
claimant could have claimed under Schedule 12 to FA 2002 (tax relief for
expenditure on R&D: large companies etc) in any accounting period in
respect of qualifying R&D expenditure attributable to the project if it had
been a large company throughout the accounting period.
5
      (2)
In this paragraph—
“large company” has the meaning given in paragraph 2 of Schedule 12
to FA 2002, and
“qualifying R&D expenditure” means expenditure that, in the
accounting period in question, was—
10
(a)
qualifying R&D expenditure within the meaning of Schedule
20 to FA 2000, or
(b)
qualifying expenditure within the meaning of Schedule 13 to
FA 2002.
Interpretation
15
6
In this Schedule “R&D relief” means any relief or tax credit under—
(a)
Schedule 20 to FA 2000 (tax relief for expenditure by SMEs on
research and development), or
(b)
Schedule 13 to FA 2002 (tax relief on expenditure on vaccine research
etc).
20
Transitional provision
7
For the purpose of any calculation in accordance with paragraph 1, no
account shall be taken of any R&D relief in respect of expenditure incurred
before the day on which this Schedule comes into force.
Part 2
25
Consequential amendments
8
In Schedule 20 to FA 2000 (relief for expenditure on research and
development), in paragraph 1 (entitlement), insert at the end—
    “(5)
This paragraph has effect subject to section 26 of the Finance Act
2008 (cap on R&D aid).”
30
9
In Schedule 12 to FA 2002 (tax relief for expenditure on research and
development)—
(a)
after paragraph 10B insert—
“Capped SME expenditure
10C
For the purposes of this Schedule, the SME’s “capped SME
35
expenditure” is any expenditure—
(a)
in respect of which the company is not entitled to
relief under Schedule 20 to the Finance Act 2000 by
reason only of section 26 of the Finance Act 2008
(cap on R&D aid), and
40
(b)
which satisfies paragraph 10B(a) and (c).”,
(b)
in paragraph 11(3)(c), insert at the end “and capped SME
expenditure (see paragraph 10C)”, and

Finance Bill
Schedule 11 — Venture capital schemes
211

(c)
in paragraph 15(1)(d), insert at the end “or capped SME
expenditure”.
10
In Schedule 13 to FA 2002 (relief for expenditure on vaccine research etc.), in
paragraph 1 (entitlement), insert at the end—
    “(3)
This paragraph has effect subject to section 26 of the Finance Act
5
2008 (cap on R&D aid).”
Schedule 11
Section 29

Venture capital schemes
Corporate Venturing Scheme
1
Part 3 of Schedule 15 to FA 2000 (CVS: the issuing company) is amended as
10
follows.
2
In paragraph 26 (excluded activities)—
(a)
in sub-paragraph (1), after paragraph (h) insert—
“(ha)
shipbuilding;
(hb)
producing coal;
15
(hc)
producing steel;”, and
(b)
in sub-paragraph (2), after the entry relating to paragraph 30 insert—
“paragraph 30A (shipbuilding);
paragraph 30B (producing coal);
paragraph 30C (producing steel);”.
20
3
After paragraph 30 insert—
“Excluded activities: shipbuilding
30A
In paragraph 26(1)(ha) “shipbuilding” has the same meaning as in
the Framework on state aid to shipbuilding (2003/C 317/06),
published in the Official Journal on 30 December 2003.
25
Excluded activities: producing coal
30B   (1)
This paragraph supplements paragraph 26(1)(hb).
      (2)
“Coal” has the meaning given by Article 2 of Council Regulation
(EC) No. 1407/2002 (state aid to coal industry).
      (3)
The production of coal includes the extraction of it.
30
Excluded activities: producing steel
30C
In paragraph 26(1)(hc) “steel” means any of the steel products
listed in Annex 1 to the Guidelines on national regional aid (2006/
C 54/08), published in the Official Journal on 4 March 2006.”

Finance Bill
Schedule 11 — Venture capital schemes
212

Enterprise Investment Scheme
4
Chapter 4 of Part 5 of ITA 2007 (EIS: the issuing company) is amended as
follows.
5
In section 192 (meaning of “excluded activities”)—
(a)
in subsection (1), after paragraph (i) insert—
5
“(ia)
shipbuilding,
(ib)
producing coal,
(ic)
producing steel,”, and
(b)
in subsection (2), after paragraph (d) insert—
“(da)
section 196A (shipbuilding),
10
(db)
section 196B (producing coal),
(dc)
section 196C (producing steel),”.
6
After section 196 insert—
“196A
Excluded activities: shipbuilding
In section 192(1)(ia) “shipbuilding” has the same meaning as in the
15
Framework on state aid to shipbuilding (2003/C 317/06), published
in the Official Journal on 30 December 2003.
196B
Excluded activities: producing coal
(1)
This section supplements section 192(1)(ib).
(2)
“Coal” has the meaning given by Article 2 of Council Regulation (EC)
20
No. 1407/2002 (state aid to coal industry).
(3)
The production of coal includes the extraction of it.
196C
Excluded activities: producing steel
In section 192(1)(ic) “steel” means any of the steel products listed in
Annex 1 to the Guidelines on national regional aid (2006/C 54/08),
25
published in the Official Journal on 4 March 2006.”
Venture capital trusts
7
Chapter 4 of Part 6 of ITA 2007 (VCTs: qualifying holdings) is amended as
follows.
8
In section 303 (meaning of “excluded activities”)—
30
(a)
in subsection (1), after paragraph (i) insert—
“(ia)
shipbuilding,
(ib)
producing coal,
(ic)
producing steel,”, and
(b)
in subsection (2), after paragraph (d) insert—
35
“(da)
section 307A (shipbuilding),
(db)
section 307B (producing coal),
(dc)
section 307C (producing steel),”.

Finance Bill
Schedule 12 — Tax credit for certain foreign distributions
Part 1 — The tax credit
213

9
After section 307 insert—
“307A
Excluded activities: shipbuilding
In section 303(1)(ia) “shipbuilding” has the same meaning as in the
Framework on state aid to shipbuilding (2003/C 317/06), published
in the Official Journal on 30 December 2003.
5
307B
Excluded activities: producing coal
(1)
This section supplements section 303(1)(ib).
(2)
“Coal” has the meaning given by Article 2 of Council Regulation (EC)
No. 1407/2002 (state aid to coal industry).
(3)
The production of coal includes the extraction of it.
10
307C
Excluded activities: producing steel
In section 303(1)(ic) “steel” means any of the steel products listed in
Annex 1 to the Guidelines on national regional aid (2006/C 54/08),
published in the Official Journal on 4 March 2006.”
Commencement
15
10
The amendments made by this Schedule are treated as having come into
force on 6 April 2008.
11
But the amendments made by paragraphs 2, 3, 5 and 6 do not have effect in
relation to shares issued before that date.
12
And the amendments made by paragraphs 8 and 9 do not have effect in
20
relation to—
(a)
a relevant holding issued before that date, or
(b)
a relevant holding acquired by a company (“the investing company”)
by means of the investment of protected money.
13
For the purposes of paragraph 12(b) “protected money” is—
25
(a)
money raised by the issue before that date of shares in or securities
of the investing company, or
(b)
money derived from the investment of such money.
Schedule 12
Section 31

Tax credit for certain foreign distributions
30
Part 1
The tax credit
1
Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident
companies etc) is amended as follows.
2
In the heading of the Chapter, for “etc.”, in the second place, substitute “and
35
tax credits etc. in respect of certain distributions”.