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 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.
20
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) 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.
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.
25
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.
40

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).