Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
512

Reliefs
1087
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 has incurred expenditure which is qualifying
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Chapter 7 expenditure for the period.
(3)
Condition B is that the company meets the R&D threshold in the period (see
section 1097).
(4)
Condition C is that the company is carrying on a trade in the period.
(5)
For the company to obtain the relief it must make a claim.
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(6)
The relief is a deduction in calculating the profits of the trade for the period.
(7)
For the amount of the deduction see—
(a)
section 1089 if the company is a small or medium-sized enterprise in the
period, and
(b)
section 1091 if the company is a large company throughout the period.
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(8)
This section is subject to section 1113 (cap on total R&D aid in relation to a
particular research and development project).
(9)
See also—
(a)
section 1088 for the declaration that a large company is required to
make in a claim under this section,
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(b)
section 1094, which prevents a company which is a small or medium-
sized enterprise from making a claim if it is not a going concern,
(c)
section 1098 for the meaning of “qualifying Chapter 7 expenditure”,
and
(d)
sections 1099 and 1100 for the meaning of qualifying Chapter 7
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expenditure “for” an accounting period.
1088
Large companies: declaration about effect of relief
(1)
This section applies if a large company claims relief under section 1087.
(2)
The claim must include a declaration that the availability of the relief claimed
has resulted in an increase in—
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(a)
the amount, scope or speed of the research and development
undertaken by the company, or
(b)
the company’s expenditure on research and development.
1089
SMEs: amount of deduction
(1)
This section applies if—
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(a)
a company makes a claim under section 1087 for relief to which it is
entitled for an accounting period, and
(b)
the company is a small or medium-sized enterprise in the period.
(2)
The amount of the deduction under that section is 40% of the company’s
qualifying Chapter 7 expenditure for the period (see sections 1098 and 1099).
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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
513

(3)
The deduction is in addition to any other deduction in respect of the
expenditure.
(4)
Subsection (2) is subject to the modification contained in section 1090 for larger
SMEs.
(5)
Expenditure taken into account for the purpose of determining the amount of
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the deduction may include expenditure which is qualifying Chapter 7
expenditure for the accounting period because of section 1099(2)(b) (pre-
trading expenditure).
(6)
This is despite the fact that the expenditure is unrelated to the trade mentioned
in section 1087(4).
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1090
Modification of section 1089 for larger SMEs
(1)
Subsection (2) applies if a company which makes a claim under section 1087 for
relief to which it is entitled for an accounting period—
(a)
is a larger SME in the period, and
(b)
obtains an R&D tax credit for the period under Chapter 2.
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(2)
Section 1089 has effect in relation to the company as if for subsection (2) there
were substituted—
“(2)
The amount of the deduction under that section is 40% of so much of
the company’s qualifying Chapter 7 expenditure for the period as is
expenditure in respect of which the company is not entitled to relief
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under Chapter 2.”
1091
Large companies: amount of deduction
(1)
This section applies if—
(a)
a company makes a claim under section 1087 for relief to which it is
entitled for an accounting period, and
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(b)
the company is a large company throughout the period.
(2)
The amount of the deduction under that section is the sum of—
(a)
amount A, and
(b)
amount B.
(3)
Amount A is 40% of so much of the company’s qualifying Chapter 7
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expenditure for the period as is allowable as a deduction in calculating for
corporation tax purposes the profits for the period of a trade carried on by the
company.
(4)
Amount B is 140% of so much of the company’s qualifying Chapter 7
expenditure for the period that is not so allowable.
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(5)
The deduction is in addition to any other deduction in respect of the
expenditure.
(6)
See sections 1098 and 1100 for the meaning of “qualifying Chapter 7
expenditure” and provision about when such expenditure is “for” an
accounting period.
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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
514

1092
SMEs: deemed trading loss for pre-trading expenditure
(1)
A company is entitled to corporation tax relief for an accounting period if it
meets each of conditions A to D.
(2)
Condition A is that the company is a small or medium-sized enterprise in the
period.
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(3)
Condition B is that the company meets the R&D threshold in the period (see
section 1097).
(4)
Condition C is that the company has incurred expenditure which is qualifying
Chapter 7 expenditure for the period as a result of section 1099(2)(b) (“pre-
trading qualifying Chapter 7 expenditure”).
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(5)
Condition D is that the company is not carrying on a trade in the period.
(6)
For the company to obtain the relief it must make an election.

See section 1094 (which prevents a company from making an election if it is not
a going concern).
(7)
The relief is that the company is treated as if it had made a trading loss in the
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period.
(8)
The amount of the trading loss is—
(a)
40% of so much of the pre-trading qualifying Chapter 7 expenditure for
the period as is expenditure in respect of which the company is also
entitled to relief under Chapter 2, and
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(b)
140% of so much of the pre-trading qualifying Chapter 7 expenditure
for the period as is expenditure in respect of which the company is not
entitled to relief under Chapter 2,

but this is subject to section 1093.
(9)
If a company makes an election under this section in respect of pre-trading
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qualifying expenditure, section 61 (pre-trading expenses) does not apply to the
expenditure.
(10)
This section is subject to section 1113 (cap on R&D aid in relation to a particular
research and development project).
(11)
See also section 1137 for provision about the accounting periods of a company
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which is not within the charge to corporation tax.
(12)
See sections 1098 and 1099 for the meaning of “qualifying Chapter 7
expenditure” and provision about when such expenditure is “for” an
accounting period.
1093
Modification of section 1092 for larger SMEs
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(1)
Subsection (2) applies if a company which makes a claim under section 1087 for
relief to which it is entitled for an accounting period—
(a)
is a larger SME in the period, and
(b)
obtains an R&D tax credit for the period under Chapter 2.
(2)
Section 1092 has effect in relation to the company as if subsection (8)(a) were
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omitted.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
515

1094
Relief only available to SME where company is going concern
(1)
A company which is a small or medium-sized enterprise may only make—
(a)
a claim under section 1087, or
(b)
an election under section 1092,

at a time when it is a going concern.
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(2)
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
that basis because of an expectation that the company would receive
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relief or R&D tax credits under Chapter 2 or this Chapter.
(3)
Section 436(2) of the Companies Act 2006 (meaning of “publication” of
documents) has effect for the purposes of this section.
Deemed trading loss: further provision
1095
Elections under section 1092
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(1)
An election under section 1092 must specify the accounting period in respect
of which it is made.
(2)
The election must be made by notice in writing to an officer of Revenue and
Customs.
(3)
The notice must be given before the end of the period of two years beginning
20
immediately after the end of the accounting period to which the election
relates.
1096
Treatment of deemed trading loss under section 1092
(1)
This section applies if under section 1092 a company is treated as making a
trading loss in an accounting period.
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(2)
The trading loss may not be set off against profits of a preceding accounting
period under section 393A(1)(b) of ICTA unless the company is entitled to
relief under section 1092 for the earlier period.
(3)
Subsection (4) applies if—
(a)
the company begins, in the accounting period or a later period, to carry
30
on a trade, and
(b)
the trade is derived from the research and development in relation to
which the relief mentioned in subsection (1) was obtained.
(4)
In that case, so far as—
(a)
the company has not obtained relief in respect of the trading loss under
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any other provision, and
(b)
the loss has not been surrendered under section 403(1) of ICTA
(surrender of relief to group or consortium members),

the trading loss is to be treated as if it were a loss of that trade brought forward
under section 393 of ICTA (relief of trading losses against future trading
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profits).

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
516

(5)
Subsection (4) is subject to section 1111 (restriction on losses carried forward
where tax credit claimed).
Threshold
1097
R&D threshold
(1)
For the purposes of this Chapter a company meets the R&D threshold in an
5
accounting period if its qualifying Chapter 7 expenditure for the period is at
least—
(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.
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(2)
The amount referred to in subsection (1)(b) is— $equation: cross[over[char[X],num[365.0000000000000000,"365"]],string["\xa3 10,000"]]$

where X is the number of days in the accounting period.
(3)
See sections 1098, 1099 and 1100 for the meaning of “qualifying Chapter 7
expenditure” and provision about when such expenditure is “for” an
accounting period.
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Qualifying expenditure
1098
Meaning of “qualifying Chapter 7 expenditure”
For the purposes of this Part a company’s “qualifying Chapter 7 expenditure”
means—
(a)
its qualifying expenditure on in-house direct research and
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development (see section 1101), and
(b)
its qualifying expenditure on contracted out research and development
(see section 1102).
1099
SMEs: qualifying expenditure “for” an accounting period
(1)
If a company is a small or medium-sized enterprise in an accounting period, its
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qualifying Chapter 7 expenditure is “for” the period if—
(a)
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, or
(b)
it would have been so allowable had the company, at the time the
30
expenditure was incurred, been carrying on a trade consisting of the
activities in respect of which it was incurred.
(2)
For the purposes of subsection (1)(a) section 61 (pre-trading expenses treated
as incurred when trading begins) is to be ignored.
1100
Large companies: qualifying expenditure “for” an accounting period
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(1)
If a company is a large company throughout an accounting period, its
qualifying Chapter 7 expenditure is “for” the period if it is allowable as a

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
517

deduction in calculating for corporation tax purposes the profits for the period
of a trade carried on by the company.
(2)
Expenditure allowable as a deduction for the purposes of subsection (1)
includes expenditure so allowable because of section 61 (pre-trading
expenses).
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1101
Qualifying expenditure on in-house direct R&D
(1)
A company’s “qualifying expenditure on in-house direct 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 attributable to qualifying R&D activity
10
(see section 1086) undertaken by the company itself.
(3)
Condition B is that the qualifying R&D activity to which the expenditure is
attributable is relevant research and development in relation to the company.
(4)
Condition C is that the expenditure is—
(a)
incurred on staffing costs (see section 1123),
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(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).
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(5)
Condition D is that the expenditure is not incurred by the company in carrying
on activities which are contracted out to the company by any person.
(6)
Condition E is that the expenditure is not subsidised (see section 1138).
(7)
See sections 1124, 1126 and 1132 for provision about when expenditure within
subsection (4)(a), (b) or (c) is attributable to relevant research and
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development.
1102
Qualifying expenditure on contracted out R&D
(1)
A company’s “qualifying expenditure on contracted out research and
development” means expenditure in relation to which each of conditions A to
D is met.
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(2)
Condition A is that the expenditure is incurred in making the qualifying
element of a sub-contractor payment (see sections 1134 to 1136) to a sub-
contractor.
(3)
Condition B is that the expenditure is attributable to qualifying R&D activity
(see section 1086) undertaken by the sub-contractor itself.
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(4)
Condition C is that the R&D activity to which the expenditure is attributable is
relevant research and development in relation to the company.
(5)
Condition D is that the expenditure is not subsidised (see section 1138).
(6)
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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