Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 6 — Chapters 2 to 5: further provision
508

1079
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 to—
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(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”).
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(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 company is
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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.
Insurance companies
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1080
Entitlement to relief: I minus E basis
(1)
This section applies if, for an accounting period, an insurance company is
charged to tax under the I minus E basis in respect of its life assurance business.
(2)
Any additional deduction to which the company would otherwise be entitled
under section 1074 is to be treated as expenses payable falling to be brought
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into account at Step 3 of section 76(7) of ICTA (insurance companies: amount
of expenses deduction).
(3)
Section 1074 does not apply to allow any deduction in any calculation of the
profits of the company’s life assurance business made in accordance with the
provisions applicable for the purposes of section 35 (charge on trade profits).
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But this is subject to subsection (4).
(4)
Section 1074 has effect in relation to any gross roll-up business of the company
as if the references to the trade carried on by the company were references to
the gross roll-up business (and subsection (2) does not apply in relation to that
business).
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Chapter 6
Chapters 2 to 5: further provision
1081
Insurance companies treated as large companies
(1)
This section applies if an insurance company—
(a)
carries on life assurance business in an accounting period, and
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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 6 — Chapters 2 to 5: further provision
509

(b)
is a small or medium-sized enterprise in the period.
(2)
For the purposes of Chapters 2 to 5 the company is to be treated as if it were
not such an enterprise in the period.
(3)
Accordingly the company is to be treated as a large company for the purposes
of Chapter 5.
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1082
R&D expenditure of group companies
(1)
This section applies if—
(a)
a company (“A”) incurs expenditure on making a payment to another
company (“B”) in respect of activities contracted out by A to B,
(b)
the activities would, if carried out by A, be research and development
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of A (taken together with A’s other activities), and
(c)
A and B are members of the same group at the time the payment is
made.
(2)
If the activities are undertaken by B itself, they are to be treated for the
purposes of Chapters 3 and 5 (so far as it would not otherwise be the case) as
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research and development undertaken by B itself.
(3)
If B makes a payment to a third party (“C”), any of the activities—
(a)
contracted out by B to C, and
(b)
undertaken by C itself,

are to be treated for the purposes of Chapters 3 and 5 (so far as it would not
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otherwise be the case) as research and development contracted out by B to C.
(4)
For the purposes of this section A and B are members of the same group if they
are members of the same group of companies for the purposes of Chapter 4 of
Part 10 of ICTA (group relief).
1083
Refunds of expenditure treated as income chargeable to tax
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(1)
This section applies if a company receives a payment (“the refund”) refunding
the whole or any part of expenditure—
(a)
to which subsection (2) applies, and
(b)
in respect of which the company obtains relief under Chapter 3, 4 or 5.
(2)
This subsection applies to—
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(a)
qualifying Chapter 3 expenditure to which section 1067 applies
(expenditure on sub-contracted R&D not undertaken in-house),
(b)
qualifying Chapter 4 expenditure (subsidised expenditure on R&D),
(c)
capped R&D expenditure, and
(d)
qualifying Chapter 5 expenditure which is—
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(i)
qualifying expenditure on contracted out research and
development under section 1078, or
(ii)
qualifying expenditure on contributions to independent
research and development under section 1079.
(3)
30% of the refund is to be treated as income of the company chargeable to tax
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under Chapter 2 of Part 3 for the accounting period in which the refund is
made.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
510

(4)
But subsection (3) does not apply if, because of section 1080(4) (gross roll-up
business), the relief obtained in respect of the expenditure concerned is an
additional deduction in calculating for corporation tax purposes the profits of
gross roll-up business of the company.
(5)
In that case 30% of the refund is to be treated as income which is—
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(a)
referable to the gross roll-up business, and
(b)
chargeable, for the accounting period in which the refund is made,
under the charge to corporation tax on income.
1084
Artificially inflated claims for relief or tax credit
(1)
To the extent that a transaction is attributable to arrangements entered into
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wholly or mainly for a disqualifying purpose, it is to be disregarded for the
purposes mentioned in subsection (2).
(2)
Those purposes are—
(a)
determining for an accounting period relief to which a company is
entitled under Chapters 2 to 5, and
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(b)
determining for an accounting period R&D tax credits to which a
company is entitled under Chapter 2.
(3)
Arrangements are entered into wholly or mainly for a “disqualifying purpose”
if their main object, or one of their main objects, is to enable a company to
obtain—
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(a)
relief under Chapters 2 to 5 to which it would not otherwise be entitled,
(b)
relief under Chapters 2 to 5 of a greater amount than that to which it
would otherwise be entitled,
(c)
an R&D tax credit under Chapter 2 to which it would not otherwise be
entitled, or
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(d)
an R&D tax credit under Chapter 2 of a greater amount than that to
which it would otherwise be entitled.
(4)
In this section “arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.
Chapter 7
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Relief for SMEs and large companies: vaccine research etc
Introductory
1085
Overview of Chapter
(1)
This Chapter provides for relief for expenditure incurred by companies
(whether they are small or medium-sized enterprises or large companies) on
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research and development relating to vaccine or medicine research.
(2)
Section 1086 defines “qualifying R&D activity” (that is, the research and
development in relation to which relief under this Chapter is available).
(3)
The reliefs available are—
(a)
a deduction under section 1087 (the amount of which is determined
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under section 1089 or 1091), or

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
511

(b)
if the company is a small or medium-sized enterprise, a deemed trading
loss under section 1092.
(4)
Section 1094 prevents a company which is a small or medium-sized enterprise
from making a claim or election for relief if it is not a going concern.
(5)
Sections 1095 to 1102 contain provision relevant to the reliefs available under
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this Chapter, namely—
(a)
information about elections under section 1092 of a deemed trading
loss (see section 1095),
(b)
information about the treatment of a deemed trading loss (see section
1096),
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(c)
provision about when a company meets the R&D threshold for the
purposes of obtaining relief (see section 1097),
(d)
provision about when a company’s expenditure is “qualifying Chapter
7 expenditure” for those purposes and when such expenditure is “for”
an accounting period (see sections 1098 to 1102).
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(6)
Sections 1103 to 1111 deal with R&D tax credits which can be claimed if a
company—
(a)
is a small or medium-sized enterprise,
(b)
obtains relief under this Chapter, and
(c)
makes, or is treated as making, a trading loss.
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(7)
Section 1112 contains an anti-avoidance provision dealing with artificially
inflated claims for relief or R&D tax credits under this Chapter.
(8)
See also section 1137 for provision about the accounting periods of a company
which is not within the charge to corporation tax.
1086
Meaning of “qualifying R&D activity”
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(1)
For the purposes of this Chapter “qualifying R&D activity” means research and
development relating to—
(a)
vaccines or medicines for the prevention or treatment of tuberculosis,
(b)
vaccines or medicines for the prevention or treatment of malaria,
(c)
vaccines for the prevention of infection by human immunodeficiency
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virus, or
(d)
vaccines or medicines for the prevention of the onset, or for the
treatment, of acquired immune deficiency syndrome resulting from
infection by human immunodeficiency virus in prescribed clades only.
(2)
For the purposes of subsection (1) “prescribed clade” means clade A, C, D or E
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or such other clade or clades as the Treasury may by regulations prescribe.
(3)
The Treasury may make provision by regulations further defining the
purposes referred to in subsection (1).
(4)
In subsection (1) references to vaccines or medicines are to vaccines or
medicines for use in humans.
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