Chapter 2: Qualifying expenditure
Overview
1521.This Chapter defines “qualifying expenditure” and excludes expenditure on “land” from being qualifying expenditure.
1522.Section 439 defines “qualifying expenditure”.
1523.Section 440 prevents expenditure on land from being qualifying expenditure subject to exceptions for existing buildings or structures on the land.
Section 439: Qualifying expenditure
1524.This section is based on sections 137(1) and (4) and 139(1)(d) and (2) of CAA 1990.
1525.It sets out the conditions to be satisfied for a person to have qualifying expenditure. There are two threads depending on whether the expenditure is incurred while the person is trading or before that trade starts.
1526.Some conditions are common to the two threads. These are that:
the person must be a trader;
the expenditure must be capital expenditure incurred by the person on R&D; and
the R&D must be directly undertaken by the person or on the person’s behalf.
1527.For expenditure incurred before the person starts trading, the trade has to be connected with the R&D.
1528.For expenditure incurred while trading, the trade must be related to the R&D.
1529.Subsection (3) introduces “the relevant trade” as a term that can be used to avoid the need for phrases such as “the trade in respect of which the expenditure has been treated as qualifying expenditure”.
1530.Subsection (4) requires any apportionment to be “just and reasonable”. This is a change, see Change 40 in Annex 1.
1531.Subsection (5) extends the R&D that can be treated as related to a trade that the person is carrying on.
Section 440: Excluded expenditure: land
1532.This section is based on section 137(2) of CAA 1990. It stops the cost of land (other than the amount attributable to buildings or structures on the land) from being qualifying expenditure.
1533.Section 137(2) of CAA 1990 takes a slightly different approach. It prevents allowances being given on such expenditure but it is not thought that there is any difference. For a more detailed discussion see Note 54 in Annex 2.
1534.Subsection (3) uses the term “just and reasonable apportionment”. This is a change, see Change 40 in Annex 1.
