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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

5

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

25

   

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

10

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”

20

(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

30

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.

35

(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

15

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

35

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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