(1)In this Part “small or medium-sized enterprise” means a micro, small or medium-sized enterprise as defined in Commission Recommendation (EC) No 2003/361, but subject to the qualifications in section 1120 [F1(and see sections 1120A and 1120B)].
(2)The Treasury may by order amend this section or [F2sections 1120 to 1120B] 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 large companies for purposes of [F3Chapter 2]).
Textual Amendments
F1Words in s. 1119(1) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(1)(a), 20
F2Words in s. 1119(2) substituted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(1)(b), 20
F3Words in s. 1119(3) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 21
(1)This section contains qualifications to the definition of small or medium-sized enterprise in section 1119.
(2)The qualifications are—
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
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 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 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.
(6)Condition D is that, taken alone, C satisfies the employee limit and at least one of the financial limits.
[F4(6A)This section is subject to sections 1120A and 1120B.]
(7)In this section [F5and in sections 1120A and 1120B] —
(a)references to the Recommendation are to the Commission Recommendation mentioned in section 1119(1),
(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 and balance sheet totals contained in Article 2(1) of the Annex (read as set out in qualification 1).
Textual Amendments
F4S. 1120(6A) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(2)(a), 20
F5Words in s. 1120(7) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(2)(b), 20
(1)This section applies, in relation to an accounting period, where the following conditions are met.
(2)The first condition is that, for the duration of the accounting period, an enterprise (“E”) is related to a partner enterprise or linked enterprise (“F”).
(3)The second condition is that, at the start of the accounting period, both E and F are small or medium-sized enterprises.
(4)The third condition is that, at the end of the accounting period, E is not a small or medium-sized enterprise by reason only that F has, during the accounting period, exceeded the employee limit or either of the financial limits.
(5)Both E and F are to be treated as if they were small or medium-sized enterprises for the accounting period.
Textual Amendments
F6Ss. 1120A, 1120B inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(3), 20
(1)This section applies, in relation to an accounting period, where the following conditions are met.
(2)The first condition is that, at the start of the accounting period, an enterprise (“E”) was not a small or medium-sized enterprise by reason only that a partner enterprise or linked enterprise to which E was related exceeded the employee limit or either of the financial limits.
(3)The second condition is that, during the accounting period, control of E was acquired by a company that, at the time of the acquisition, was a small or medium-sized enterprise.
(4)E is to be treated as if it were a small or medium-sized enterprise for the accounting period.
(5)In subsection (3) “control” has the same meaning as in section 1124 of CTA 2010.]
Textual Amendments
F6Ss. 1120A, 1120B inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 16(3), 20
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.
In this Part “large company” means a company that is not a small or medium-sized enterprise.
(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
(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 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.
(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 F7... or Switzerland.
(6)In subsection (5) “social security legislation” means legislation relating to any of the branches of social security listed in Article 3(1) of Regulation (EC) No. 883/2004 of the European Parliament and of the Council on the co-ordination of social security systems [F8as it had effect in the UK immediately before IP completion day].
(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 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 without subsidiary benefits).
Textual Amendments
F7Words in s. 1123(5) omitted (31.12.2020) by virtue of The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 16(21) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)
F8Words in s. 1123(6) substituted (31.12.2020) by The Taxes (State Aid) (Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1499), regs. 1, 5(2)
Modifications etc. (not altering text)
C1S. 1123 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(a) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(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 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 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.
Modifications etc. (not altering text)
C2S. 1124 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(b) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
C3S. 1124(5)(6) applied by 2010 c. 4, s. 357BJB(7) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
Textual Amendments
F9Words in s. 1125 cross-heading inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(2), 20
(1)For the purposes of this Part expenditure on software [F11, data licences, cloud computing services or consumable items means an amount paid by the company in respect of]—
(a)computer software, F12...
[F13(aa)data licences,
(ab)cloud computing services, or]
(b)consumable or transformable materials.
[F14(1A)For the purposes of subsection (1)(aa) a data licence is a licence to access and use a collection of digital data.
(1B)For the purposes of subsection (1)(ab) cloud computing services include the provision of access to, and maintenance of, remote—
(a)data storage and hardware facilities;
(b)operating systems and software platforms.]
(2)For the purposes of subsection (1)(b) consumable or transformable materials include water, fuel and power.
Textual Amendments
F10Words in s. 1125 heading inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(3)(a), 20
F11Words in s. 1125(1) substituted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(3)(b)(i), 20
F12Word in s. 1125(1)(a) omitted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(3)(b)(ii), 20
F13S. 1125(1)(aa)(ab) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(3)(b)(iii), 20
F14S. 1125(1A)(1B) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(3)(c), 20
Modifications etc. (not altering text)
C4S. 1125 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(c) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)This section applies for the purposes of this Part to identify when expenditure on software [F16, data licences, cloud computing services] or consumable items is attributable to relevant research and development.
(2)Expenditure on software [F17, data licences, cloud computing services] or consumable items is so attributable if the software [F17, data licences, cloud computing services] or consumable items are employed directly in relevant research and development.
(3)Subsection (4) applies if software [F18, data licences, cloud computing services] or consumable items are partly employed directly in relevant research and development.
(4)The appropriate proportion of the expenditure on the software [F19, data licences, cloud computing services] or consumable items is treated as attributable to relevant research and development.
(5)Subsection (6) applies if software [F20, data licences, cloud computing services] or consumable items are employed in the provision of services, such as secretarial or administrative services, in support of other activities.
(6)The software [F21, data licences, cloud computing services] 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.
[F22(7)This section is subject to sections 1126A and 1126B.]
Textual Amendments
F15Words in s. 1126 heading inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(a), 20
F16Words in s. 1126(1) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F17Words in s. 1126(2) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F18Words in s. 1126(3) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F19Words in s. 1126(4) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F20Words in s. 1126(5) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F21Words in s. 1126(6) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(4)(b), 20
F22S. 1126(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(2)
Modifications etc. (not altering text)
C5Ss. 1126-1126B applied (with modifications) by 2010 c. 4, s. 357BLB(7)(d) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)Expenditure on data licences or cloud computing services is not to be treated as attributable to relevant research and development if, in connection with the grant of a licence or the provision of a service, a relevant person obtains—
(a)a right to sell data in respect of which the licence is granted or the service is provided (as the case may be);
(b)a right to publish, share or otherwise communicate data in respect of which the licence is granted or the service is provided (as the case may be) to a third party, other than for the purposes of communications reasonably necessary for, or incidental to, the purposes of the relevant research and development.
(2)Expenditure on data licences or cloud computing services is not to be treated as attributable to relevant research and development so far as it is attributable to a qualifying indirect activity.
(3)In this section—
“qualifying indirect activity” means an activity mentioned in paragraph 31 of the Guidelines on the Meaning of Research and Development for Tax Purposes issued on 7 March 2023 and as amended from time to time;
“relevant person” has the meaning given in section 1126A(10).]
Textual Amendments
F23S. 1126ZA inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by virtue of Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(5), 20
(1)Expenditure on consumable items is not to be treated as attributable to relevant research and development if—
(a)the relevant research and development relates to an item that is produced in the course of the research and development,
(b)the consumable items form part of the item produced,
(c)the item produced is transferred by a relevant person for consideration in money or money's worth, and
(d)the transfer is made in the ordinary course of the relevant person's business.
(2)Expenditure on consumable items is not to be treated as attributable to relevant research and development if—
(a)the relevant research and development relates to a process of producing an item,
(b)the consumable items form part of an item produced in the course of that research and development,
(c)the item produced is transferred by a relevant person for consideration in money or money's worth, and
(d)the transfer is made in the ordinary course of the relevant person's business.
(3)If—
(a)the item produced as described in subsection (1) or (2) may be divided, and
(b)only a proportion (“the appropriate proportion”) of that item is transferred by a relevant person as described in subsection (1)(c) and (d) or (2)(c) and (d),
the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.
(4)If—
(a)a number of items are produced in the course of the relevant research and development described in subsection (2), and
(b)only a proportion (“the appropriate proportion”) of those items is transferred by a relevant person as described in subsection (2)(c) and (d),
the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.
(5)A reference in this section to producing an item includes a reference to preparing an item for transfer.
(6)For the purposes of this section a consumable item forms part of an item produced if—
(a)it is incorporated into the item produced, or
(b)it is turned into, or it and other materials are turned into, the item produced or a part of the item produced.
(7)A reference in this section to the transfer of an item is a reference to—
(a)the transfer of ownership of an item to another person (whether by sale or otherwise), or
(b)the transfer of possession of an item to another person (whether by letting on hire or otherwise),
and a reference to the transfer of an item includes, where the item is incorporated into another item, the transfer of that other item.
(8)For the purposes of this section the provision of information obtained in testing an item is not to be regarded as consideration for the transfer of that item.
(9)For the purposes of this section a transfer of an item produced in the course of research and development is not to be regarded as a transfer in the ordinary course of business if the item being transferred is waste.
(10)In this section—
“item” includes any substance;
“relevant person”, in relation to relevant research and development, means—
the company that incurs the cost of the research and development, whether it is undertaken by itself or contracted out,
the company to which the research and development is contracted out, whether it is undertaken by itself or contracted out,
the person (other than a company) who contracts out the research and development to a company and incurs the cost of the research and development,
the person (other than a company) to whom the research and development is contracted out, or
a person who is connected to a company or person described in paragraph (a), (b), (c) or (d).
Textual Amendments
F24Ss. 1126A, 1126B inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(3)
F25Words in s. 1126A heading inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(6), 20
Modifications etc. (not altering text)
C5Ss. 1126-1126B applied (with modifications) by 2010 c. 4, s. 357BLB(7)(d) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)The Treasury may by regulations make provision for the purpose of identifying when expenditure on [F26data licences, cloud computing services or] consumable items is attributable to relevant research and development, including provision modifying the effect of section 1126 [F27, 1126ZA] or 1126A.
(2)Regulations under this section may include provision about—
(a)the circumstances in which expenditure on [F28data licences, cloud computing services or] consumable items employed directly in relevant research and development is, or is not, to be treated as attributable to that relevant research and development;
(b)the circumstances in which [F29data licences, cloud computing services or] consumable items are, or are not, to be treated as employed directly in relevant research and development.
(3)Regulations under this section may—
(a)make different provision for different purposes;
(b)make incidental, consequential, supplementary or transitional provision or savings.
(4)Regulations under this section may amend—
(a)section 1126;
[F30(aa)section 1126ZA;]
(b)section 1126A;
(c)any other provision of this Act, if that is appropriate in consequence of provision made under paragraph (a) or (b).
(5)Regulations under this section may make provision that has effect in relation to expenditure incurred before the making of the regulations, provided that it does not increase any person's liability to tax.]
Textual Amendments
F24Ss. 1126A, 1126B inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(3)
F26Words in s. 1126B(1) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(7)(a)(i), 20
F27Word in s. 1126B(1) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(7)(a)(ii), 20
F28Words in s. 1126B(2)(a) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(7)(b)(i), 20
F29Words in s. 1126B(2)(b) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(7)(b)(ii), 20
F30S. 1126B(4)(aa) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 3(7)(c), 20
Modifications etc. (not altering text)
C5Ss. 1126-1126B applied (with modifications) by 2010 c. 4, s. 357BLB(7)(d) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(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 “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.
(3)In sections 1128 to 1131 references to “staff provider” and “staff provision payment” are to be read in accordance with subsection (1).
Modifications etc. (not altering text)
C6Ss. 1127-1131 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(e) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(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.
(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, 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).
(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 [F31a person other than the company (the “staff controller”)].
(8)Condition G is that the provision of those services does not constitute the carrying on of activities contracted out by the company.
[F32(9)In sections 1129 to 1131 references to “staff controller” are to be read in accordance with subsection (7).]
Textual Amendments
F31Words in s. 1128(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 34(2)
F32S. 1128(9) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 34(3)
Modifications etc. (not altering text)
C6Ss. 1127-1131 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(e) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
C7S. 1128 modified by 2010 c. 4, s. 357WBA(3) (as inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 7 para. 15)
(1)This section applies if—
(a)a company makes a staff provision payment,
[F33(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and
(c)in accordance with generally accepted accounting practice—
(i)the whole of the staff provision payment has been brought into account in determining the staff provider's profit or loss for a relevant period, and
(ii)all of the relevant expenditure of each staff controller has been brought into account in determining the staff controller's profit or loss for a relevant period.]
(2)The company's qualifying expenditure on externally provided workers is—
(a)the entire staff provision payment, or
(b)if less, an amount equal to [F34the aggregate of the relevant expenditure of each staff controller].
(3)“Relevant expenditure”[F35, in relation to a staff controller,] means expenditure that—
(a)is incurred by the [F36staff controller] in providing for the company the externally provided workers to whom the staff provision payment relates,
(b)is not of a capital nature, and
(c)is incurred on staffing costs or agency workers' remuneration.
(4)“Relevant period”[F37, in relation to a person,] means a period—
(a)for which accounts are drawn up for the [F38person], and
(b)that ends not more than 12 months after the end of the company's period of account in which the staff provision payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.
[F39(4A)In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
(a)section 61S of ITEPA 2003,
(b)regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
(c)regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.]
(5)In section 1123 (meaning of “staffing costs”), which applies for the purpose of determining whether [F40the expenditure of a staff controller] meets the requirements of subsection (3)(c), references to a company are to be read as references to [F41a staff controller].
(6)“Agency workers' remuneration”, in the case of any person who is an externally provided worker in relation to the company, means remuneration that—
(a)is receivable by the worker under or in consequence of the contract mentioned in section 1128(7), but
(b)does not constitute employment income of the worker apart from Chapter 7 of Part 2 of ITEPA 2003 (application of provisions to agency workers).
(7)Any apportionment of expenditure of the company or [F42a staff controller] necessary for the purposes of this section is to be made on a just and reasonable basis.
Textual Amendments
F33S. 1129(1)(b)(c) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(2)
F34Words in s. 1129(2)(b) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(3)
F35Words in s. 1129(3) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(4)(a)
F36Words in s. 1129(3)(a) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(4)(b)
F37Words in s. 1129(4) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(5)(a)
F38Words in s. 1129(4)(a) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(5)(b)
F39S. 1129(4A) inserted (with effect in accordance with Sch. 1 para. 28 of the amending Act) by Finance Act 2020 (c. 14), Sch. 1 para. 23(2) (with Sch. 1 paras. 30-34)
F40Words in s. 1129(5) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(6)(a)
F41Words in s. 1129(5) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(6)(b)
F42Words in s. 1129(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(7)
Modifications etc. (not altering text)
C6Ss. 1127-1131 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(e) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
[F43(1)If—
(a)a company makes a staff provision payment, and
(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,
they may jointly elect that section 1129 is to apply to them as if they were all connected.]
(2)Any such election [F44has effect] in relation to all staff provision payments paid under the same contract or other arrangement.
(3)The election must be made by notice in writing to an officer of Revenue and Customs.
(4)The notice must be given before the end of the period of two years beginning immediately after the end of the company's accounting period in which the contract or other arrangement is entered into.
(5)An election under this section is irrevocable.
Textual Amendments
F43S. 1130(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 36(2)
F44Words in s. 1130(2) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 36(3)
Modifications etc. (not altering text)
C6Ss. 1127-1131 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(e) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)This section applies if—
(a)a company makes a staff provision payment,
[F45(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,] and
(c)no election is made under section 1130.
(2)The company's qualifying expenditure on externally provided workers is 65% of the staff provision payment.
[F46(3)In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
(a)section 61S of ITEPA 2003,
(b)regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
(c)regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.]
Textual Amendments
F45S. 1131(1)(b) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 37
F46S. 1131(3) inserted (with effect in accordance with Sch. 1 para. 28 of the amending Act) by Finance Act 2020 (c. 14), Sch. 1 para. 23(3) (with Sch. 1 paras. 30-34)
Modifications etc. (not altering text)
C6Ss. 1127-1131 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(e) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)This section applies if—
(a)a company makes a staff provision payment,
(b)the company is treated as making a payment of deemed direct earnings the amount of which is calculated by reference to the amount of the staff provision payment, and
(c)the company pays a secondary Class 1 national insurance contribution in respect of the payment of deemed direct earnings.
(2)In determining the company's qualifying expenditure on externally provided workers in accordance with section 1129(2) or section 1131(2) the amount of the staff payment provision is to be treated as increased by the amount of the contribution.
(3)In determining the company's qualifying expenditure on externally provided workers in accordance with section 1129(2) the aggregate of the relevant expenditure of each staff controller is to be treated as increased by the amount of the contribution.
(4)But subsection (2) does not apply to the extent that the expenditure incurred by the company in paying the contribution is met directly or indirectly by a staff controller.
(5)“A payment of deemed direct earning” means a payment the company is treated as making by reason of regulation 14 of the Social Security Contributions (Intermediaries) Regulations 2000 or regulation 14 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.]
Textual Amendments
F47S. 1131A inserted (with effect in accordance with Sch. 1 para. 28 of the amending Act) by Finance Act 2020 (c. 14), Sch. 1 para. 23(4) (with Sch. 1 paras. 30-34)
(1)This section applies for the purposes of this Part to identify when qualifying expenditure on externally provided workers is attributable to relevant research and development.
(2)Qualifying expenditure on externally provided workers is so attributable if the workers are directly and actively engaged in relevant research and development.
(3)Subsection (4) applies if an externally provided worker is partly engaged directly and actively in relevant research and development.
(4)The appropriate proportion of the qualifying expenditure relating to the worker 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.
Modifications etc. (not altering text)
C8S. 1132 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(f) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
(1)In this Part a “sub-contractor payment” means a payment made by a company to another person (“the sub-contractor”) in respect of research and development contracted out by the company to that person.
(2)Sections 1134 to 1136 apply if a company makes a sub-contractor payment.
(3)They apply for the purpose of determining the qualifying element of the payment for the purposes of—
Textual Amendments
F48Words in s. 1133(3) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 22
F49Words in s. 1133(3) omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(7)
(1)This section applies if—
(a)a company makes a sub-contractor payment,
(b)the company and the sub-contractor are connected, and
(c)in accordance with generally accepted accounting practice, the whole of the sub-contractor payment and all of the sub-contractor's relevant expenditure have been brought into account in determining the sub-contractor's profit or loss for a relevant period.
(2)The qualifying element of the sub-contractor payment is—
(a)the entire payment, or
(b)if less, an amount equal to the sub-contractor's relevant expenditure.
(3)“Relevant expenditure” of the sub-contractor means expenditure that—
(a)is incurred by the sub-contractor in carrying on, on behalf of the company, the activities to which the sub-contractor payment relates,
(b)is not of a capital nature,
(c)is incurred on staffing costs, software [F50, data licences, cloud computing services] or consumable items or relevant payments to the subjects of a clinical trial or is qualifying expenditure on externally provided workers, and
(d)is not subsidised.
(4)“Relevant period” means a period—
(a)for which accounts are drawn up for the sub-contractor, and
(b)that ends not more than 12 months after the end of the company's period of account in which the sub-contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.
(5)In the following sections, which apply for the purpose of determining whether a sub-contractor's expenditure meets the requirements of subsection (3)(c) and (d)—
(a)section 1123 (staffing costs),
(b)sections 1127 to 1131 (qualifying expenditure on externally provided workers), and
(c)section 1138 (subsidised expenditure),
references to a company are to be read as references to the sub-contractor.
(6)Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this section is to be made on a just and reasonable basis.
Textual Amendments
F50Words in s. 1134(3)(c) inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 6(b), 20
(1)A company and a sub-contractor who are not connected may jointly elect that section 1134 is to apply to them as if they were connected.
(2)Any such election must be made in relation to all sub-contractor payments paid under the same contract or other arrangement.
(3)The election must be made by notice in writing to an officer of Revenue and Customs.
(4)The notice must be given before the end of the period of two years beginning immediately after the end of the company's accounting period in which the contract or other arrangement is entered into.
(5)An election under this section is irrevocable.
(1)This section applies if—
(a)a company makes a sub-contractor payment,
(b)the company and the sub-contractor are not connected persons, and
(c)no election is made under section 1135.
(2)The qualifying element of the sub-contractor payment is 65% of the sub-contractor payment.
(1)This section applies to a company if—
(a)it is not within the charge to corporation tax, and
(b)it incurs qualifying Chapter 2 expenditure F51... .
(2)For the purposes of this Part the company is treated as having the accounting periods it would have if—
(a)it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and
(b)it had started to carry on that trade when it started to carry on relevant research and development.
Textual Amendments
F51Words in s. 1137(1)(b) omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(8)
(1)For the purposes of this Part a company's expenditure is treated as subsidised—
(a)if a notified State aid is, or has been, obtained in respect of—
(i)the whole or part of the expenditure, or
(ii)any other expenditure (whenever incurred) attributable to the same research and development project,
(b)to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure,
(c)to the extent that it is otherwise met directly or indirectly by a person other than the company.
(2)In this section “notified State aid” means a State aid notified to and approved by the European Commission.
(3)For this purpose the following are not State aids—
(a)relief under this Part, F52...
(b)R&D tax credits under this Part.
[F53(c)R&D expenditure credits under Chapter 6A of Part 3.]
(4)For the purposes of this Part a notified State aid, grant, subsidy or payment that is not allocated to particular expenditure is to be allocated to expenditure of the recipient on a just and reasonable basis.
Textual Amendments
F52Word in s. 1138(3)(a) omitted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 2(3)
F53S. 1138(3)(c) inserted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 2(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textual Amendments
F54S. 1139 omitted (with effect in accordance with s. 13(8) of the amending Act) by virtue of Finance (No. 3) Act 2010 (c. 33), s. 13(6)
(1)References in this Part to expenditure incurred on payments (however expressed) are references to expenditure incurred on payments made before the making of a claim under this Part in relation to that expenditure.]
Textual Amendments
F55S. 1139A inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 18(2), 20
(1)For the purposes of this Part “relevant payment”, in relation to a subject of a clinical trial, means a payment made to the subject for participating in the trial.
(2)For the purposes of this Part “clinical trial” means an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure.
Modifications etc. (not altering text)
C9S. 1140 applied (with modifications) by 2010 c. 4, s. 357BLB(7)(g) (as inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3))
In this Part a “payment period” means a period—
(a)which ends on the fifth day of a month, and
(b)for which the company is liable to account for income tax and national insurance contributions to an officer of Revenue and Customs.
(1)For the purposes of this Part “qualifying body” means—
(a)a charity,
(b)an institution of higher education,
[F56(c)an association (in the sense that word has in section 469(1)(a) of CTA 2010) which meets conditions A and B in that section (conditions for qualifying as a scientific research association),]
(d)a health service body within the meaning of [F57section 986] of that Act, or
(e)any other body prescribed, or of a description prescribed, by the Treasury, by order, for the purposes of this Part.
(2)In subsection (1)(b) “institution of higher education” means—
(a)an institution within the higher education sector within the meaning of the Further and Higher Education Act 1992 (c. 13),
(b)an institution within the higher education sector within the meaning of Part 2 of the Further and Higher Education (Scotland) Act 1992 (c. 37) or a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44), or
(c)a higher education institution within the meaning of Article 30(3) of the Education and Libraries (Northern Ireland) Order 1993 (S.I. 1993/2810 (N.I. 12)).
(3)An order under this section is to have effect in relation to the accounting periods or expenditure specified in the order.
(4)The order may specify accounting periods beginning, or expenditure incurred, before the time the order is made.
Textual Amendments
F56S. 1142(1)(c) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 676(a) (with Sch. 2)
F57Words in s. 1142(1)(d) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 676(b) (with Sch. 2)
(1)For the purposes of this Part—
“claim notification” means, in relation to an R&D claim, a notification made by the company to an officer of His Majesty’s Revenue and Customs in accordance with regulations under subsection (2);
“claim notification period” means, in relation to an R&D claim, the period—
beginning with the first day of the period of account which is the same as the accounting period in respect of which the claim is made, or within which that accounting period falls, and
ending with the last day of the period of six months beginning with the first day after that period of account.
(2)The Commissioners for His Majesty’s Revenue and Customs may by regulations specify, in relation to a claim notification—
(a)information to be provided with the notification;
(b)the form and manner in which the notification is to be made.
Textual Amendments
F58Ss. 1142A, 1142B inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 2(6), 20 Edit
For the purposes of this Part an “R&D claim” means a claim under—
(a)section 104A (R&D expenditure credits),
(b)section 1044 (relief for SMEs: additional deduction), or
(c)section 1054 (entitlement to R&D tax credit).]
Textual Amendments
F58Ss. 1142A, 1142B inserted (with effect in relation to accounting periods beginning on or after 1.4.2023) by Finance (No. 2) Act 2023 (c. 30), Sch. 1 paras. 2(6), 20 Edit