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 8 — Cap on aid for R&D
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1115
“The tax credits”
(1)
In section 1114 “the tax credits” means the total R&D tax credits that have been
paid to the claimant under Chapter 2 or 7 in respect of expenditure attributable
to the research and development project.
(2)
An R&D tax credit that has been claimed but not paid or applied is treated for
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the purposes of subsection (1) as if it had been paid.
(3)
Subsection (2) does not apply if the claimant has been informed by Her
Majesty’s Revenue and Customs that the R&D tax credit will not be paid or
applied.
1116
“The actual reduction in tax liability”
10
(1)
In section 1114 “the actual reduction in tax liability” means the sum of—
(a)
amounts within subsection (2), and
(b)
amounts within subsection (3).
(2)
The amounts within this subsection are those by which the liability of the
claimant to pay corporation tax has been reduced in any accounting period in
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consequence of qualifying R&D relief in respect of expenditure attributable to
the research and development project.
(3)
The amounts within this subsection are those by which the liability of any other
company (“C”) to pay corporation tax has been reduced in any accounting
period in consequence of a surrendered loss.
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(4)
A “surrendered loss” means a loss which—
(a)
is surrendered to C by the claimant under section 402 of ICTA
(surrender of relief between members of groups and consortia), and
(b)
arises in consequence of qualifying R&D relief in respect of expenditure
attributable to the project.
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1117
“The potential relief”
(1)
In section 1114 “the potential relief” means the total amount of any qualifying
R&D relief (other than an R&D 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 in
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accordance with section 1114, has not been brought into account by the
claimant or by any other company.
(2)
Qualifying R&D relief is not to be counted for the purposes of subsection (1) if
the claimant has been informed by Her Majesty’s Revenue and Customs that it
is not entitled to the relief.
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1118
“The notional relief”
(1)
In section 1114 “the notional relief” means the total amount of relief that the
claimant could have claimed under Chapter 5 (relief for large companies) in
any accounting period in respect of qualifying expenditure attributable to the
research and development project if the claimant had been a large company
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throughout the period.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 9 — Supplementary
524

(2)
“Qualifying expenditure” means expenditure that, in the accounting period in
question, was—
(a)
qualifying Chapter 2 expenditure (see section 1051), or
(b)
qualifying Chapter 7 expenditure (see section 1098).
Chapter 9
5
Supplementary
SMEs and large companies
1119
“Small or medium-sized enterprise”
(1)
In this Part “small or medium-sized enterprise” means a micro, small or
medium-sized enterprise as defined in Commission Recommendation (EC) No
10
2003/361, but subject to the qualifications in section 1120.
(2)
The Treasury may by order amend this section or section 1120 to substitute a
different definition of “small or medium-sized enterprise” for the purposes of
this Part.
(3)
This section is subject to section 1081 (insurance companies to be treated as
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large companies for purposes of Chapters 2 to 5).
1120
Qualifications to section 1119
(1)
This section contains qualifications to the definition of small or medium-sized
enterprise in section 1119.
(2)
The qualifications are—
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Qualification 1

In Article 2(1) of the Annex, the references to 250 persons, 50 million euros and
43 million euros are to be read as references to 500 persons, 100 million euros
and 86 millions euros (respectively).
Qualification 2
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If each of conditions A to D is met, Article 4(2) of the Annex is to be disregarded
in determining whether a company (“C”) is within the definition of small or
medium-sized enterprise in section 1119 for an accounting period in which C
exceeds the employee limit or the financial limits.
(3)
Condition A is that C is a micro, small or medium-sized enterprise as defined
30
in the Recommendation (or would be if the Annex were read as set out in
qualification 1), disregarding any partner enterprise or linked enterprise.
(4)
Condition B is that a partner enterprise or linked enterprise to which C is
related exceeds the employee limit or both of the financial limits, disregarding
the number of employees, the annual turnover and the annual balance sheet
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totals of C.
(5)
Condition C is that the number of employees, annual turnover or annual
balance sheet total (as the case may be) of the partner enterprise or linked
enterprise to which C is related has been taken into account in determining
whether C exceeded the employee limit or the financial limits.
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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 9 — Supplementary
525

(6)
Condition D is that, taken alone, C satisfies the employee limit and at least one
of the financial limits.
(7)
In this section—
(a)
references to the Recommendation are to the Commission
Recommendation mentioned in section 1119(1),
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(b)
references to the Annex are to the Annex to the Recommendation,
(c)
references to the employee limit are to the limit on the number of
employees contained in Article 2(1) of the Annex (read as set out in
qualification 1), and
(d)
references to the financial limits are to the limits on the annual turnover
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and balance sheet totals contained in Article 2(1) of the Annex (read as
set out in qualification 1).
1121
“Larger SME”
References in this Part to a “larger SME” are to a company which is a small or
medium-sized enterprise by virtue of qualification 1 in section 1120.
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1122
“Large company”
In this Part “large company” means a company that is not a small or medium-
sized enterprise.
Staffing costs
1123
“Staffing costs”
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(1)
For the purposes of this Part the staffing costs of a company are amounts to
which subsection (2), (3), (4), (5) or (7) applies.
(2)
This subsection applies to an amount paid by the company to a director or an
employee of the company which—
(a)
is earnings consisting of money, and
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(b)
is paid because of the director’s or employee’s employment.
(3)
This subsection applies to an amount paid by the company to a director or an
employee of the company, other than an amount paid in respect of benefits in
kind, if—
(a)
the amount is paid in respect of expenses paid by the director or
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employee, and
(b)
the amount is paid because of the director’s or employee’s
employment.
(4)
This subsection applies to secondary Class 1 national insurance contributions
paid by the company.
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(5)
This subsection applies to compulsory contributions paid by the company in
respect of benefits for directors or employees of the company under the social
security legislation of an EEA State (other than the United Kingdom) or
Switzerland.
(6)
In subsection (5) “social security legislation” means legislation relating to any
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of the branches of social security listed in Article 3(1) of Regulation (EC) No.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 9 — Supplementary
526

883/2004 of the European Parliament and of the Council on the co-ordination
of social security systems (as amended from time to time).
(7)
This subsection applies to contributions paid by the company to a pension
fund operated for the benefit of directors or employees of the company.
(8)
In subsection (7) “pension fund” means a scheme, fund or other arrangement
5
established and maintained (whether in the United Kingdom or elsewhere) for
the purpose of providing pension benefits.

For this purpose “scheme” includes a deed, agreement or series of agreements.
(9)
In subsection (8) “pension benefits” means pensions, retirement annuities,
allowances, lump sums, gratuities or other superannuation benefits (with or
10
without subsidiary benefits).
1124
Staffing costs: attributable expenditure
(1)
This section applies for the purposes of this Part to identify when staffing costs
are attributable to relevant research and development.
(2)
The costs which are so attributable are those paid to, or in respect of, directors
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or employees who are directly and actively engaged in relevant research and
development.
(3)
Subsection (4) applies if a director or employee is partly engaged directly and
actively in relevant research and development.
(4)
The appropriate proportion of the staffing costs relating to the director or
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employee is treated as attributable to relevant research and development.
(5)
Subsection (6) applies if persons provide services, such as secretarial or
administrative services, in support of activities carried on by others.
(6)
Those persons are not, as a result of providing those services, to be treated as
themselves directly and actively engaged in those activities.
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Software or consumable items
1125
“Software or consumable items”
(1)
For the purposes of this Part expenditure on software or consumable items
means expenditure on—
(a)
computer software, or
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(b)
consumable or transformable materials.
(2)
For the purposes of subsection (1)(b) consumable or transformable materials
include water, fuel and power.
1126
Software or consumable items: attributable expenditure
(1)
This section applies for the purposes of this Part to identify when expenditure
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on software or consumable items is attributable to relevant research and
development.
(2)
Expenditure on software or consumable items is so attributable if the software
or consumable items are employed directly in relevant research and
development.
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Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 9 — Supplementary
527

(3)
Subsection (4) applies if software or consumable items are partly employed
directly in relevant research and development.
(4)
The appropriate proportion of the expenditure on the software or consumable
items is treated as attributable to relevant research and development.
(5)
Subsection (6) applies if software or consumable items are employed in the
5
provision of services, such as secretarial or administrative services, in support
of other activities.
(6)
The software or consumable items are not, as a result of their employment in
the provision of those services, to be treated as themselves directly employed
in those activities.
10
Qualifying expenditure on externally provided workers
1127
“Qualifying expenditure on externally provided workers”
(1)
For the purposes of this Part a company incurs expenditure on externally
provided workers if—
(a)
it makes a payment (a “staff provision payment”) to another person (the
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“staff provider”), and
(b)
the payment is in respect of the supply to the company, by or through
the staff provider, of the services of any externally provided workers.
(2)
The company’s qualifying expenditure on externally provided workers is
determined in accordance with section 1129 or 1131.
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(3)
In sections 1128 to 1131 references to “staff provider” and “staff provision
payment” are to be read in accordance with subsection (1).
1128
“Externally provided worker”
(1)
For the purposes of this Part a person is an “externally provided worker” in
relation to a company if each of conditions A to G is met.
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(2)
Condition A is that the worker is an individual.
(3)
Condition B is that the worker is not a director or employee of the company.
(4)
Condition C is that the worker personally provides, or is under an obligation
personally to provide, services to the company.
(5)
Condition D is that the worker is subject to (or to the right of) supervision,
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direction or control by the company as to the manner in which those services
are provided.
(6)
Condition E is that the worker’s services are supplied to the company through
a staff provider (whether or not the worker is a director or employee of the staff
provider or any other person).
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(7)
Condition F is that the worker provides, or is under an obligation to provide,
those services personally to the company under the terms of a contract between
the worker and the staff provider.
(8)
Condition G is that the provision of those services does not constitute the
carrying on of activities contracted out by the company.
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