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 4 — Relief for SMEs: subsidised and capped expenditure on R&D
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1071
Subsidised qualifying expenditure on in-house direct R&D
(1)
A company’s “subsidised 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 subsidised (see section 1138).
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(3)
Condition B is that the expenditure is—
(a)
incurred on staffing costs (see section 1123),
(b)
incurred on software or consumable items (see section 1125),
(c)
qualifying expenditure on externally provided workers (see section
1127), or
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(d)
incurred on relevant payments to the subjects of a clinical trial (see
section 1140).
(4)
Condition C is that the expenditure is attributable to relevant research and
development undertaken by the company itself.
(5)
Condition D is that any intellectual property created as a result of the research
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and development to which the expenditure is attributable is, or will be, vested
in the company (whether alone or with other persons).
(6)
Condition E is that the expenditure is not incurred by the company in carrying
on activities which are contracted out to the company by any person.
(7)
See sections 1124, 1126 and 1132 for provision about when expenditure within
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subsection (3)(a), (b) or (c) is attributable to relevant research and
development.
1072
Subsidised qualifying expenditure on contracted out R&D
(1)
A company’s “subsidised qualifying expenditure on contracted out research
and development” means expenditure—
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(a)
which is incurred by it in making the qualifying element of a sub-
contractor payment (see sections 1134 to 1136), and
(b)
in relation to which each of conditions A to F is met.
(2)
Condition A is that the expenditure is subsidised (see section 1138).
(3)
Condition B is that the sub-contractor is—
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(a)
a qualifying body,
(b)
an individual, or
(c)
a firm, each member of which is an individual.
(4)
Condition C is that the body, individual or firm concerned undertakes the
contracted out research and development itself.
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(5)
Condition D is that the expenditure is attributable to relevant research and
development in relation to the company.
(6)
Condition E is that any intellectual property created as a result of the research
and development to which the expenditure is attributable is, or will be, vested
in the company (whether alone or with other persons).
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(7)
Condition F is that the expenditure is not incurred by the company in carrying
on activities which are contracted out to the company by any person.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 5 — Relief for large companies
505

(8)
Sections 1124, 1126 and 1132 contain provision about when particular kinds of
expenditure are attributable to relevant research and development.
1073
Capped R&D expenditure
For the purposes of this Part a company’s “capped R&D expenditure” is any
expenditure—
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(a)
in respect of which the company is not entitled to relief under Chapter
2 merely because of section 1113 (cap on R&D aid),
(b)
which is not qualifying Chapter 3 expenditure, and
(c)
which would have been qualifying Chapter 5 expenditure had the
company been a large company throughout the accounting period in
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question.
Chapter 5
Relief for large companies
Relief
1074
Additional deduction in calculating profits of trade
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(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 large company throughout the period.
(3)
Condition B is that the company meets the R&D threshold in the period (see
section 1075).
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(4)
Condition C is that the company carries on a trade in the period.
(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 5
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expenditure which—
(a)
is incurred by the company, and
(b)
is allowable as a deduction in calculating for corporation tax purposes
the profits of the trade for the period.
(8)
For the meaning of “qualifying Chapter 5 expenditure” see section 1076.
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(9)
See also—
(a)
section 1080 for special provision about insurance companies,
(b)
section 1082 for provision about research and development
expenditure of group companies, and
(c)
section 1083 for provision about refunds of qualifying Chapter 5
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expenditure.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 5 — Relief for large companies
506

Threshold
1075
R&D threshold
(1)
For the purposes of this Chapter a company meets the R&D threshold in an
accounting period if its qualifying Chapter 5 expenditure for the period is at
least—
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(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.
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(3)
A company’s qualifying Chapter 5 expenditure is “for” the 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.
(4)
Expenditure allowable as a deduction for the purposes of subsection (3)
includes expenditure so allowable because of section 61 (pre-trading
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expenses).
(5)
For the meaning of “qualifying Chapter 5 expenditure” see section 1076.
Qualifying expenditure
1076
Qualifying Chapter 5 expenditure
For the purposes of this Part a company’s “qualifying Chapter 5 expenditure”
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means—
(a)
its qualifying expenditure on in-house direct research and
development (see section 1077),
(b)
its qualifying expenditure on contracted out research and development
(see section 1078), and
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(c)
its qualifying expenditure on contributions to independent research
and development (see section 1079).
1077
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
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conditions A, B and C are met.
(2)
Condition A is that the expenditure is—
(a)
incurred on staffing costs (see section 1123),
(b)
incurred on software or consumable items (see section 1125),
(c)
qualifying expenditure on externally provided workers (see section
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1127), or
(d)
incurred on relevant payments to the subjects of a clinical trial (see
section 1140).

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 5 — Relief for large companies
507

(3)
Condition B is that the expenditure is attributable to relevant research and
development undertaken by the company itself.
(4)
Condition C is that, if the expenditure is incurred in carrying on activities
contracted out to the company, the activities are contracted out by—
(a)
a large company, or
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(b)
any person otherwise than in the course of carrying on a chargeable
trade.
(5)
A “chargeable trade” is—
(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
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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
this Act.
(6)
See sections 1124, 1126 and 1132 for provision about when expenditure within
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subsection (2)(a), (b) or (c) is attributable to relevant research and
development.
1078
Qualifying expenditure on contracted out R&D
(1)
A company’s “qualifying expenditure on contracted out research and
development” means expenditure incurred by it in relation to which each of
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conditions A to D is met.
(2)
Condition A is that the expenditure is incurred in making payments to—
(a)
a qualifying body,
(b)
an individual, or
(c)
a firm, each member of which is an individual,
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in respect of research and development contracted out by the company to the
body, individual or firm concerned (“the contracted out R&D”).
(3)
Condition B is that the body, individual or firm concerned undertakes the
contracted out R&D itself.
(4)
Condition C is that the expenditure is attributable to relevant research and
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development in relation to the company.
(5)
Condition D is that, if the contracted out R&D is itself contracted out to the
company, it is contracted out by—
(a)
a large company, or
(b)
any person otherwise than in the course of carrying on a chargeable
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trade.
(6)
A “chargeable trade” is—
(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
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(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
this Act.
(7)
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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