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Corporation Tax Bill


Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 2 — Relief for SMEs: cost of R&D incurred by SME

498

 

1056    

Amount of trading loss which is “unrelieved”

(1)   

This section applies for the purposes of section 1055.

(2)   

The amount of a trading loss that is “unrelieved” is the amount of the loss

reduced by—

(a)   

any relief that was or could have been obtained by the company

5

making a claim under section 393A(1)(a) of ICTA to set the loss against

profits of the same accounting period,

(b)   

any other relief obtained by the company in respect of the loss,

including relief under section 393A(1)(b) or 393B(3) of that Act (losses

set against profits of an earlier accounting period), and

10

(c)   

any loss surrendered under section 403(1) of that Act (surrender of

relief to group or consortium members).

(3)   

No account is to be taken for this purpose of any losses—

(a)   

brought forward from an earlier accounting period under section

393(1) of ICTA, or

15

(b)   

carried back from a later accounting period under section 393A(1)(b) or

393B(3) of that Act.

1057    

Tax credit only available where company is going concern

(1)   

A company may only make a claim under section 1054 at a time when it is a

going concern.

20

(2)   

If a company ceases to be a going concern after making a claim under section

1054, it is treated as if it had not made the claim (and accordingly there is

treated as having been no payment of R&D tax credit to carry interest under

section 826 of ICTA).

(3)   

Subsection (2) does not apply so far as the claim relates to an amount that was

25

paid or applied before the company ceased to be a going concern.

(4)   

For the purposes of this section 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 prepared on

30

that basis because of an expectation that the company would receive

relief or R&D tax credits under this Chapter or Chapter 7.

(5)   

Section 436(2) of the Companies Act 2006 (meaning of “publication” of

documents) has effect for the purposes of this section.

Amount of tax credit

35

1058    

Amount of tax credit

(1)   

The amount of the R&D tax credit to which a company is entitled for an

accounting period is—

(a)   

14% of the amount of the Chapter 2 surrenderable loss for the period, or

(b)   

if less, the total amount of the company’s PAYE and NIC liabilities for

40

payment periods ending in the accounting period.

 
 

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 2 — Relief for SMEs: cost of R&D incurred by SME

499

 

(2)   

The Treasury may by order replace the percentage for the time being specified

in subsection (1)(a) with a different percentage.

(3)   

An order under subsection (2) may contain incidental, supplemental,

consequential and transitional provision and savings.

1059    

Total amount of company’s PAYE and NIC liabilities

5

(1)   

The total amount of the company’s PAYE and NIC liabilities for a payment

period is the sum of—

(a)   

amount A, and

(b)   

amount B.

(2)   

Amount A is the amount of income tax for which the company is required to

10

account to an officer of Revenue and Customs for the payment period under

PAYE regulations.

(3)   

In calculating amount A disregard any deduction the company is authorised to

make in respect of child tax credit or working tax credit.

(4)   

Amount B is the amount of Class 1 national insurance contributions for which

15

the company is required to account to an officer of Revenue and Customs for

the payment period.

(5)   

In calculating amount B disregard any deduction the company is authorised to

make in respect of payments of statutory sick pay, statutory maternity pay,

child tax credit or working tax credit.

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Supplementary

1060    

Payment of tax credit

(1)   

This section applies if an R&D tax credit for an accounting period is payable to

a company under this Chapter.

(2)   

The amount payable in respect of—

25

(a)   

the R&D tax credit, or

(b)   

interest on the credit payable under section 826 of ICTA,

   

may be applied in discharging any liability of the company to pay corporation

tax.

(3)   

So far as the amount is so applied, the duty of the officer of Revenue and

30

Customs to pay the credit under section 1054(4) is discharged.

(4)   

Subsection (5) applies if the company’s tax return for the accounting period is

enquired into by an officer of Revenue and Customs.

(5)   

In that case—

(a)   

no payment in respect of the R&D tax credit for the period need be

35

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 such amount

as the officer thinks fit.

(6)   

No payment need be made in respect of the R&D tax credit if the company has

40

outstanding PAYE and NIC liabilities for the period.

 
 

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 3 — Relief for SMEs: R&D sub-contracted to SME

500

 

(7)   

A company has outstanding PAYE and NIC liabilities for an accounting period

if it has not paid to an officer of Revenue and Customs any amount that it is

required to pay—

(a)   

under PAYE regulations, or

(b)   

in respect of Class 1 national insurance contributions,

5

   

for payment periods ending in the accounting period.

1061    

Tax credit payment not income of company

A payment in respect of an R&D tax credit under this Chapter is not income of

the company for any tax purposes.

1062    

Restriction on losses carried forward where tax credit claimed

10

(1)   

This section applies if a company claims an R&D tax credit to which it is

entitled for an accounting period.

(2)   

For the purposes of section 393 of ICTA (relief of trading losses against future

trading profits) the company’s trading loss for the period is treated as reduced

by the amount of the surrendered loss for the period.

15

(3)   

The “amount of the surrendered loss” for the period means the amount of the

Chapter 2 surrenderable loss in respect of which the company claims an R&D

tax credit for the period.

Chapter 3

Relief for SMEs: R&D sub-contracted to SME

20

Relief

1063    

Additional deduction in calculating profits of trade

(1)   

A company is entitled to corporation tax relief for an accounting period if it

meets conditions A, B and C.

(2)   

Condition A is that the company is a small or medium-sized enterprise in the

25

period.

(3)   

Condition B is that the company meets the R&D threshold in the period (see

section 1064).

(4)   

Condition C is that the company has qualifying Chapter 3 expenditure which

is allowable as a deduction in calculating for corporation tax purposes the

30

profits for the period of a trade carried on by the company.

(5)   

For the company to obtain the relief it must make a claim.

(6)   

The relief is an additional deduction in calculating the profits of the trade for

the period.

(7)   

The amount of the additional deduction is 30% of the qualifying Chapter 3

35

expenditure.

(8)   

For the meaning of “qualifying Chapter 3 expenditure” see section 1065.

 
 

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 3 — Relief for SMEs: R&D sub-contracted to SME

501

 

(9)   

See also—

(a)   

section 1082 for provision about research and development

expenditure of group companies, and

(b)   

section 1083 for provision about refunds of qualifying Chapter 3

expenditure.

5

Threshold

1064    

R&D threshold

(1)   

For the purposes of this Chapter a company meets the R&D threshold in an

accounting period if its total qualifying R&D expenditure for the period is at

least—

10

(a)   

£10,000, if the accounting period is a period of 12 months, or

(b)   

the amount given by subsection (2), if the accounting period is a period

of less than 12 months.

(2)   

The amount referred to in subsection (1)(b) isequation: cross[over[char[X],num[365.0000000000000000,"365"]],string["\xa3 10,000"]]

   

where X is the number of days in the accounting period.

15

(3)   

A company’s “total qualifying R&D expenditure” for an accounting period is

the sum of—

(a)   

its qualifying Chapter 2 expenditure (see section 1051),

(b)   

its qualifying Chapter 3 expenditure (see section 1065), and

(c)   

its qualifying Chapter 4 expenditure (see section 1070),

20

   

that is deductible in the period.

(4)   

A company’s expenditure is deductible in an accounting period if it is

allowable as a deduction in calculating for corporation tax purposes the profits

for the period of a trade carried on by the company.

(5)   

Expenditure allowable as a deduction for the purposes of subsection (4)

25

includes expenditure so allowable because of section 61 (pre-trading

expenses).

Qualifying expenditure

1065    

Qualifying Chapter 3 expenditure

(1)   

For the purposes of this Part a company’s “qualifying Chapter 3 expenditure”

30

means expenditure incurred by it that meets conditions A and B.

(2)   

Condition A is that the expenditure is incurred on research and development

contracted out to the company by—

(a)   

a large company, or

(b)   

any person otherwise than in the course of carrying on a chargeable

35

trade.

(3)   

A “chargeable trade” is—

 
 

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 3 — Relief for SMEs: R&D sub-contracted to SME

502

 

(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 Chapter 2 of Part 3 of

5

this Act.

(4)   

Condition B is that the expenditure is expenditure to which section 1066 or

1067 applies.

1066    

Expenditure on sub-contracted R&D undertaken in-house

(1)   

This section applies to expenditure on research and development contracted

10

out to a company if conditions A, B and C are met.

(2)   

Condition A is that the research and development is undertaken by the

company itself.

(3)   

Condition B is that the expenditure is—

(a)   

incurred on staffing costs (see section 1123),

15

(b)   

incurred on software or consumable items (see section 1125),

(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).

20

(4)   

Condition C is that the expenditure is attributable to relevant research and

development in relation to the company.

(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.

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1067    

Expenditure on sub-contracted R&D not 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 expenditure is incurred in making payments to—

(a)   

a qualifying body,

30

(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.

(3)   

Condition B is that the research and development is undertaken by the body,

35

individual or firm itself.

(4)   

Condition C is that the expenditure is attributable to relevant research and

development in relation to the company.

(5)   

See sections 1124, 1126 and 1132 for provision about when particular kinds of

expenditure are attributable to relevant research and development.

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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 4 — Relief for SMEs: subsidised and capped expenditure on R&D

503

 

Chapter 4

Relief for SMEs: subsidised and capped expenditure on R&D

Relief

1068    

Additional deduction in calculating profits of trade

(1)   

A company is entitled to corporation tax relief for an accounting period if it

5

meets conditions A, B and C.

(2)   

Condition A is that the company is a small or medium-sized enterprise in the

period.

(3)   

Condition B is that the company meets the R&D threshold in the period (see

section 1069).

10

(4)   

Condition C is that the company has expenditure within subsection (5) which

is allowable as a deduction in calculating for corporation tax purposes the

profits for the period of a trade carried on by the company.

(5)   

The expenditure within this subsection is—

(a)   

qualifying Chapter 4 expenditure (see section 1070), and

15

(b)   

capped R&D expenditure (see section 1073).

(6)   

For the company to obtain the relief it must make a claim.

(7)   

The relief is an additional deduction in calculating the profits of the trade for

the period.

(8)   

The amount of the additional deduction is 30% of the expenditure mentioned

20

in subsection (4).

(9)   

See section 1083 for provision about refunds of qualifying Chapter 4

expenditure and capped R&D expenditure.

Threshold

1069    

R&D threshold

25

If a company meets the R&D threshold in an accounting period for the

purposes of Chapter 3 (see section 1064) it also meets the R&D threshold in the

period for the purposes of this Chapter.

Qualifying expenditure

1070    

Qualifying Chapter 4 expenditure

30

For the purposes of this Part a company’s “qualifying Chapter 4 expenditure”

means—

(a)   

its subsidised qualifying expenditure on in-house direct research and

development (see section 1071), and

(b)   

its subsidised qualifying expenditure on contracted out research and

35

development (see section 1072).

 
 

 
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