History
1496.This Part has its origins in sections 28, 29 and 31 of FA 1944 (when the allowances were known as “scientific research allowances”). Minor changes were made to those sections in Income Tax Act 1945 (the Act which introduced capital allowances generally for expenditure on, among other things, industrial buildings and machinery or plant).
1497.Allowances were originally given for R&D expenditure (then called “scientific research expenditure”) of a capital nature over five years at 20% a year.
1498.If the expenditure was represented by an asset, there could be no claim for other types of capital allowance while the asset continued in use for R&D related to the trade concerned. But, if that asset ceased to be so used, there was then a balancing adjustment. The adjustment ensured the net relief equalled any loss in value of the asset by the date of its change of use. After that adjustment the person could claim other types of capital allowance.
1499.Section 20 of FA 1949 changed the rate of R&D allowances to 60% in the first year and 10% in each of the next four years.
1500.Section 21 of FA 1954 introduced provisions giving accelerated relief for the cost of demolishing assets representing capital expenditure on R&D.
1501.Section 36 of FA 1963:
increased R&D allowances to 100%;
amended the provisions dealing with “balancing allowances” and “balancing charges” to fit the new regime of 100% allowances; and
provided that if an asset was bought and sold in the same year, an allowance was given in that year on any net cost of the asset. As a result any allowance otherwise due in the next year (on the preceding year basis of assessment then in force) was not to be given.
1502.Section 63 of FA 1985 stopped R&D allowances being given:
on the cost of acquiring land or rights in or over land (except to the extent that part of the cost is properly attributable to a current building or structure on that land); and
for expenditure on the provision of residential accommodation (except if the accommodation forms part of the premises used for R&D and the cost of that accommodation is not more than 25% of the cost of the entire structure).
1503.FA 1985 also expanded the recapture of allowances on an asset ceasing to be owned – previously a sale of the asset was required.
1504.Section 62 of FA 1988 introduced new capital gains tax and capital allowance rules for arm’s length disposals, made at the “pre-development” stage, of interests in oil licences in the UK or on the UK Continental Shelf. The new rules applied if the consideration for the disposal included either:
an obligation to undertake a program of exploration and appraisal work in the area covered by the licence; or
another such “pre-development” licence interest.
1505.Such consideration is treated as having a nil value for the purpose of recovering R&D allowances on the disposal of the licence interest.
1506.Section 121 and Schedule 13 of FA 1989 introduced provisions that:
allow apportionment of expenditure if an asset is sometimes to be used for R&D and sometimes to be used for other purposes;
define when an asset, that is sold, ceases to be owned; and
give a single set of provisions to prevent double allowances whereby claimants make an irrevocable choice as to what type of allowance they wanted on particular expenditure.
1507.CAA 1990 consolidated the provisions about capital allowances (other than those contained in Chapter I of Part XIII of ICTA).
1508.FA 1991 introduced changes so that:
additional VAT liabilities on an amount that got a R&D allowance might also qualify for such an allowance; and
additional VAT rebates would give rise to a recapture of allowances.
1509.FA 1996 inserted section 138A of CAA 1990. This was to make sure that R&D allowances on capital expenditure on mineral exploration and access could be recovered on the disposal of an interest in an oil licence, to the extent that the expenditure had added value to the oil licence. This provision applied retrospectively as well as prospectively. FA 1996 therefore inserted section 138B of CAA 1990 to cater for the potentially retrospective element of section 138A. Section 138B allowed the transferor to use a lower disposal value than that given by section 138A, if that value was also used in calculating the transferee’s entitlement to capital allowances.
1510.FA 1996 also:
applied section 151 of CAA 1990, dealing with apportionments that could affect more than one person, to Part VII of CAA 1990; and
extended the relief mentioned in paragraph 1504 above so that it applies to oil licences world-wide and not only to UK and UK Continental Shelf licences.
1511.FA 2000 changed:
the term “scientific research” previously used to the present term “research and development”;
introduced a more detailed definition of what constitutes R&D; and
ensured that appeals on the meaning of “research and development” could go to an independent tribunal.
