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 7 — Relief for SMEs and large companies: vaccine research etc
518

Tax credit: entitlement and payment
1103
Entitlement to and payment of tax credit
(1)
A company is entitled to an R&D tax credit for an accounting period if—
(a)
it is a small or medium-sized enterprise in the period, and
(b)
it has a Chapter 7 surrenderable loss in the period (see section 1104).
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(2)
For a company to obtain an R&D tax credit in respect of all or part of the
Chapter 7 surrenderable loss it must make a claim.

See section 1106 (which prevents a company from making a claim if it is not a
going concern).
(3)
The amount of an R&D tax credit to which the company is entitled is
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determined in accordance with section 1107.
(4)
If a company makes a claim for an R&D tax credit to which it is entitled for an
accounting period, an officer of Revenue and Customs must pay to the
company the amount of the credit.

This is subject to section 1109.
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(5)
This section is subject to section 1113 (cap on R&D aid in relation to a particular
research and development project).
(6)
See also section 1111, which restricts the carry forward of losses where a
company claims an R&D tax credit.
1104
Meaning of “Chapter 7 surrenderable loss”
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(1)
For the purposes of this Chapter a company has a “Chapter 7 surrenderable
loss” if in an accounting period—
(a)
it obtains a deduction under section 1087 in calculating the profits of a
trade and it makes a trading loss in that period in the trade, or
(b)
it is treated as making a trading loss under section 1092.
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(2)
If relief is obtained under section 1087 the amount of the Chapter 7
surrenderable loss is—
(a)
amount A, or
(b)
if less, amount B.
(3)
Amount A is so much of the trading loss as is unrelieved.
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(4)
Amount B is the sum of—
(a)
the total amount deductible under section 1087, and
(b)
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 under Chapter 2,
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but this is subject to subsection (5).
(5)
If the company is a larger SME, amount B is 140% 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 under Chapter 2.
(6)
If relief is obtained under section 1092 the amount of the Chapter 7
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surrenderable loss is so much of the trading loss as is unrelieved.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
519

1105
Amount of trading loss which is “unrelieved”
(1)
This section applies for the purposes of section 1104.
(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
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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) of that Act (losses set against
profits of an earlier accounting period),
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(c)
any loss surrendered under section 403(1) of that Act (surrender of
relief to group or consortium members), and
(d)
the amount of any Chapter 2 surrenderable loss (as defined by section
1055) in respect of which an R&D tax credit is claimed under Chapter 2.
(3)
No account is to be taken for this purpose of any losses—
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(a)
brought forward from an earlier accounting period under section
393(1) of ICTA, or
(b)
carried back from a later accounting period under section 393A(1)(b) of
that Act.
1106
Tax credit only available where company is going concern
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(1)
A company may only make a claim under section 1103 at a time when it is a
going concern.
(2)
If a company ceases to be a going concern after making a claim under section
1103, 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
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section 826 of ICTA).
(3)
Subsection (2) does not apply so far as the claim relates to an amount that was
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,
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and
(b)
nothing in those accounts indicates that they were only prepared on
that basis because of an expectation that the company would receive
relief or R&D tax credits under Chapter 2 or this Chapter.
(5)
Section 436(2) of the Companies Act 2006 (meaning of “publication” of
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documents) has effect for the purposes of this section.
Amount of tax credit
1107
Amount of tax credit
(1)
The amount of the R&D tax credit to which a company is entitled for an
accounting period is 16% of the amount of the Chapter 7 surrenderable loss for
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the period.
(2)
Subsection (1) is subject to the limit set out in subsection (3).

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
520

(3)
The limit is that the total of the R&D tax credits to which the company is
entitled for the accounting period under Chapter 2 and this Chapter is not to
exceed the total amount of the company’s PAYE and NIC liabilities for
payment periods ending in the accounting period (see section 1108).
(4)
The Treasury may by order replace the percentage for the time being specified
5
in subsection (1) with a different percentage.
(5)
An order under subsection (4) may contain incidental, supplemental,
consequential and transitional provision and savings.
1108
Total amount of company’s PAYE and NIC liabilities
(1)
The total amount of the company’s PAYE and NIC liabilities for a payment
10
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
account to an officer of Revenue and Customs for the payment period under
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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
the company is required to account to an officer of Revenue and Customs for
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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.
Supplementary
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1109
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—
(a)
the R&D tax credit, or
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(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
Customs to pay the credit under section 1103(4) is discharged.
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(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
made before the officer’s enquiries are completed (see paragraph 32 of
40
Schedule 18 to FA 1998), but

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 7 — Relief for SMEs and large companies: vaccine research etc
521

(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
outstanding PAYE and NIC liabilities for the period.
(7)
A company has outstanding PAYE and NIC liabilities for an accounting period
5
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,

for payment periods ending in the accounting period.
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1110
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.
1111
Restriction on losses carried forward where tax credit claimed
(1)
This section applies if a company claims an R&D tax credit to which it is
15
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.
(3)
The “amount of the surrendered loss” for the period means the amount of the
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Chapter 7 surrenderable loss in respect of which the company claims an R&D
tax credit for the period.
Tax avoidance
1112
Artificially inflated claims for relief or tax credit
(1)
To the extent that a transaction is attributable to arrangements entered into
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wholly or mainly for a disqualifying purpose, it is to be disregarded for the
purposes mentioned in subsection (2).
(2)
Those purposes are—
(a)
determining for an accounting period relief to which a company is
entitled under this Chapter, and
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(b)
determining for an accounting period R&D tax credits to which a
company is entitled under this Chapter.
(3)
Arrangements are entered into wholly or mainly for a “disqualifying purpose”
if their main object, or one of their main objects, is to enable a company to
obtain—
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(a)
relief under this Chapter to which it would not otherwise be entitled,
(b)
relief under this Chapter of a greater amount than that to which it
would otherwise be entitled,
(c)
an R&D tax credit under this Chapter to which it would not otherwise
be entitled, or
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(d)
an R&D tax credit under this Chapter of a greater amount than that to
which it would otherwise be entitled.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 8 — Cap on aid for R&D
522

(4)
In this section “arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.
Chapter 8
Cap on aid for R&D
1113
Cap on R&D aid under Chapter 2 or 7
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(1)
A company is only entitled to qualifying R&D relief in respect of expenditure
attributable to a research and development project if, or so far as, the condition
in subsection (2) is met at that time.
(2)
The condition is that the total R&D aid in respect of expenditure by the
company attributable to the project would not exceed 7.5 million euros.
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(3)
In subsection (2) “total R&D aid” means the total R&D aid calculated—
(a)
in accordance with section 1114, and
(b)
as if a claim or election had been made for the R&D relief mentioned in
subsection (1).
(4)
In this Chapter “qualifying R&D relief” means any relief or R&D tax credit
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under—
(a)
Chapter 2 (relief for SMEs: cost of R&D incurred by SME), or
(b)
Chapter 7 (relief for SMEs and large companies: expenditure on vaccine
research etc).
(5)
The Treasury may by regulations—
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(a)
increase the amount specified in subsection (2), and
(b)
amend this Chapter (apart from this section).
1114
Total R&D aid
For the purposes of section 1113 the total R&D aid, in respect of expenditure by
a company (“the claimant”) attributable to a research and development project,
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is calculated as follows—
where—
A is the total R&D aid,
TC is the tax credits (see section 1115),
R is the actual reduction in tax liability (see section 1116),
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P is the potential relief (see section 1117),
CT is the main rate of corporation tax at the time when the total R&D aid
is calculated, and
N is the notional relief (see section 1118).