Search Legislation

Finance Act 2002

What Version

 Help about what version

Advanced Features

 Help about advanced features

Changes to legislation:

There are outstanding changes not yet made by the legislation.gov.uk editorial team to Finance Act 2002. Any changes that have already been made by the team appear in the content and are referenced with annotations. Help about Changes to Legislation

Close

Changes to Legislation

Revised legislation carried on this site may not be fully up to date. Changes and effects are recorded by our editorial team in lists which can be found in the ‘Changes to Legislation’ area. Where those effects have yet to be applied to the text of the legislation by the editorial team they are also listed alongside the legislation in the affected provisions. Use the ‘more’ link to open the changes and effects relevant to the provision you are viewing.

Changes and effects yet to be applied to the whole Act associated Parts and Chapters:

 Help about changes and effects
Close

Changes and effects

This section lists the changes and effects yet to be applied to the whole Act, associated Parts and Chapters where applicable. This includes any insertions of whole new Parts, Chapters or provisions yet to be inserted into this Act. These effects are included in this view as they may be (but won’t necessarily be) relevant to the specific provision that you are viewing.

Commencement Orders yet to be applied to the Finance Act 2002

 Help about changes and effects
Close

Commencement Orders

This section lists the commencement orders yet to be applied to the whole Act. These effects are included in this view as they may be (but won’t necessarily be) relevant to the specific provision that you are viewing. Where applicable the commencement orders are listed under two headings, firstly those that bring some part of the Act you are viewing into force and secondly, those that bring into force legislation that affects some part of the legislation you are viewing. If you are viewing a prospective version or there is a prospective version available there may be commencement orders listed here that are relevant to the provision you are viewing.

Commencement Orders bringing legislation that affects this Act into force:

Part 1E+W+S+N.I.Entitlement to relief

Entitlement to relief under this ScheduleE+W+S+N.I.

1(1)A company is entitled to relief under this Schedule for an accounting period if the company’s qualifying expenditure for that period (see paragraph 2) is not less than—

(a)£25,000, if the accounting period is a period of 12 months, or

(b)such amount as bears to £25,000 the same proportion as the accounting period bears to 12 months.

(2)Relief under this Schedule in respect of any expenditure is in addition to any relief in respect of that expenditure under Schedule 20 to the Finance Act 2000 (c. 17) or Schedule 12 to this Act (tax relief for expenditure on research and development).

Qualifying expenditureE+W+S+N.I.

2(1)For the purposes of this Schedule “qualifying expenditure” means—

(a)qualifying expenditure on direct research and development (see paragraphs 3 to 5),

(b)qualifying expenditure on sub-contracted research and development (see paragraphs 6 to 11), or

(c)qualifying expenditure on contributions to independent research and development (see paragraph 12).

(2)The qualifying expenditure of a company “for an accounting period” is determined as follows.

(3)The qualifying expenditure on direct or sub-contracted research and development for an accounting period is—

(a)in the case of company that qualifies as a small or medium-sized enterprise in that period, qualifying expenditure that—

(i)is deductible in computing for tax purposes the profits for that period of a trade carried on by the company, or

(ii)would have been so deductible had the company, at the time the expenditure was incurred, been carrying on a trade consisting of the activities in respect of which it was incurred,

(disregarding for this purpose section 401 of the Taxes Act 1988 (pre-trading expenditure treated as incurred when trading begins));

(b)in the case of a company that does not qualify as a small or medium-sized enterprise in that period, qualifying expenditure that is deductible in computing for tax purposes the profits for that period of a trade carried on by the company (including expenditure that is so deductible by virtue of section 401 of the Taxes Act 1988).

(4)The qualifying expenditure on contributions to independent research and development for an accounting period is the expenditure that is incurred on contributions paid in that period.

Qualifying expenditure on direct research and developmentE+W+S+N.I.

3(1)Qualifying expenditure of a company on direct research and development is expenditure incurred by the company that satisfies the following conditions.

(2)The first condition is that the expenditure is on qualifying R&D activity (see paragraph 4) directly undertaken by the company.

(3)The second condition is that the qualifying R&D activity on which the expenditure is incurred is relevant research and development in relation to the company.

(4)The third condition is that the expenditure is not of a capital nature.

(5)The fourth condition is that the expenditure is incurred—

(a)on staffing costs, or

(b)on consumable stores.

(6)The fifth condition is that the expenditure is not incurred by the company in carrying on activities the carrying on of which is contracted out to the company by any person.

(7)The sixth condition is that the expenditure is not subsidised.

Qualifying R&D activityE+W+S+N.I.

4(1)For the purposes of this Schedule “qualifying R&D activity” means research and development relating to—

(a)vaccines or medicines for the prevention or treatment of tuberculosis,

(b)vaccines or medicines for the prevention or treatment of malaria,

(c)vaccines for the prevention of infection by human immunodeficiency virus, or

(d)vaccines or medicines for the prevention of the onset, or for the treatment, of acquired immune deficiency syndrome resulting from infection by human immunodeficiency virus in prescribed clades only.

(2)For the purposes of sub-paragraph (1) “prescribed clade” means clade A, C, D or E or such other clade or clades as the Treasury may by regulations prescribe.

(3)The Treasury may make provision by regulations further defining the purposes referred to in sub-paragraph (1)(a), (b), (c) or (d).

(4)In sub-paragraph (1) references to vaccines or medicines are to vaccines or medicines for use in humans.

Meaning of “relevant R&D", “small or medium-sized enterprise", “staffing costs", “consumable stores" and “subsidised".E+W+S+N.I.

5(1)For the purposes of this Schedule “relevant research and development”, in relation to a company, means research and development—

(a)related to a trade carried on by the company, or

(b)from which it is intended that a trade to be carried on by the company will be derived.

(2)For the purposes of this Schedule research and development related to a trade carried on by the company includes research and development which may lead to or facilitate an extension of that trade.

(3)The following provisions of Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for R&D expenditure of small and medium-sized companies) apply for the purposes of this Schedule as they apply for the purposes of that Schedule—

(a)paragraph 2 (meaning of “small or medium-sized enterprise");

(b)paragraph 5 (staffing costs);

(c)paragraph 6 (expenditure on consumable stores); and

(d)paragraph 8 (subsidised expenditure),

except that in their application for the purposes of this Schedule, references in that Schedule to relevant research and development shall be construed in accordance with sub-paragraphs (1) and (2) above.

Qualifying expenditure on sub-contracted research and developmentE+W+S+N.I.

6(1)Paragraphs 7 to 11 make provision for determining the qualifying expenditure of a company on sub-contracted research and development.

This is subject to sub-paragraph (3).

(2)For the purposes of those paragraphs a company (“the principal”) incurs expenditure on sub-contracted research and development if it makes a payment (a “sub-contractor payment”) to another person (“the sub-contractor”) in respect of research and development contracted out by the company to that person.

(3)Where the sub-contractor is—

(a)a charity (within the meaning of section 506(1) of the Taxes Act 1988),

(b)a university, or

(c)an Association of a description specified in section 508 of that Act (scientific research organisations),

paragraphs 7(1) and 8 to 11 do not apply and expenditure of the principal on sub-contracted expenditure is qualifying expenditure if it satisfies the conditions of paragraph 7(2) to (6).

Conditions that must be satisfied by qualifying expenditure on sub-contracted research and developmentE+W+S+N.I.

7(1)Expenditure of a company on sub-contracted research and development is not qualifying expenditure unless it satisfies the following conditions.

(2)The first condition is that the expenditure is on research and development directly undertaken on behalf of the company by the sub-contractor.

(3)The second condition is that the expenditure is on qualifying R&D activity (see paragraph 4).

(4)The third condition is that the R&D activity in respect of which the expenditure is incurred is relevant research and development in relation to the company.

(5)The fourth condition is that the expenditure is not of a capital nature.

(6)The fifth condition is that the expenditure is not subsidised.

Treatment of sub-contractor payment where principal and sub-contractor are connected personsE+W+S+N.I.

8(1)Where the principal and the sub-contractor are connected persons and in accordance with generally accepted accounting practice—

(a)the whole of the sub-contractor payment has been brought into account in determining the sub-contractor’s profit or loss for a relevant period, and

(b)all of the sub-contractor’s relevant expenditure has been so brought into account,

the whole of the payment (up to the amount of the sub-contractor’s relevant expenditure) is qualifying expenditure on sub-contracted research and development.

This is subject to paragraph 7 (conditions that must be satisfied by qualifying expenditure on sub-contracted R&D).

(2)In sub-paragraph (1)—

(a)relevant expenditure” has the meaning given by paragraph 9, and

(b)relevant period” means a period—

(i)for which accounts are drawn up by the sub-contractor, and

(ii)that ends not more than twelve months after the end of the principal’s period of account in which the sub-contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining the principal’s profit or loss.

(3)Any apportionment of expenditure of the principal or the sub-contractor necessary for the purposes of this paragraph shall be made on a just and reasonable basis.

Relevant expenditure of the sub-contractorE+W+S+N.I.

9(1)For the purposes of paragraph 8 the “relevant expenditure” of the sub-contractor is expenditure that—

(a)is incurred by the sub-contractor in carrying on, on behalf of the principal, the activities to which the sub-contractor payment relates, and

(b)satisfies the following conditions.

(2)The first condition is that the expenditure is not of a capital nature as regards the sub-contractor.

(3)The second condition is that the expenditure is incurred—

(a)on staffing costs, or

(b)on consumable stores.

In applying (by virtue of paragraph 5 above) paragraph 5 of Schedule 20 to the Finance Act 2000 (c. 17) (meaning of “staffing costs") for the purposes of this sub-paragraph, the references to the company shall be read as references to the sub-contractor.

(4)The third condition is that the expenditure is not subsidised.

In applying (by virtue of paragraph 5 above) paragraph 8 of that Schedule (subsidised expenditure) for the purposes of this paragraph, the references to the company shall be read as references to the sub-contractor.

Election for connected persons treatmentE+W+S+N.I.

10(1)The principal and the sub-contractor may in any case jointly elect that paragraph 8 (treatment of sub-contractor payment where principal and sub-contractor are connected) shall apply to sub-contractor payments made by the principal to the sub-contractor.

(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 given to the Inland Revenue.

(4)The notice must be given not later than two years after the end of the company’s accounting period in which the contract or other arrangement is entered into.

(5)An election under this paragraph, once made, is irrevocable.

Treatment of sub-contractor payment in other casesE+W+S+N.I.

11Where the principal makes a sub-contractor payment and—

(a)the principal and the sub-contractor are not connected persons, and

(b)no election is made under paragraph 10 (election for connected persons treatment),

65% of the amount of the sub-contractor payment is treated as qualifying expenditure on sub-contracted research and development.

This is subject to paragraph 7 (conditions that must be satisfied by qualifying expenditure on sub-contracted R&D).

Qualifying expenditure on contributions to independent research and developmentE+W+S+N.I.

12(1)Expenditure of a company on contributions to independent research and development is qualifying expenditure where the following conditions are satisfied.

(2)The first condition is that the expenditure must be incurred on payments made to—

(a)a charity (within the meaning of section 506(1) of the Taxes Act 1988),

(b)a university, or

(c)an Association of a description specified in section 508 of that Act (scientific research organisations),

for the purpose of funding qualifying R&D activity carried on by the body in question.

(3)The second condition is that the R&D activity must be research and development related to a trade carried on by the company.

Back to top

Options/Help

Print Options

You have chosen to open The Whole Act

The Whole Act you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.

Would you like to continue?

You have chosen to open The Whole Act as a PDF

The Whole Act you have selected contains over 200 provisions and might take some time to download.

Would you like to continue?

You have chosen to open the Whole Act

The Whole Act you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.

Would you like to continue?

You have chosen to open Schedules only

The Schedules you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.

Would you like to continue?

Close

Legislation is available in different versions:

Latest Available (revised):The latest available updated version of the legislation incorporating changes made by subsequent legislation and applied by our editorial team. Changes we have not yet applied to the text, can be found in the ‘Changes to Legislation’ area.

Original (As Enacted or Made):The original version of the legislation as it stood when it was enacted or made. No changes have been applied to the text.

Close

See additional information alongside the content

Geographical Extent: Indicates the geographical area that this provision applies to. For further information see ‘Frequently Asked Questions’.

Show Timeline of Changes: See how this legislation has or could change over time. Turning this feature on will show extra navigation options to go to these specific points in time. Return to the latest available version by using the controls above in the What Version box.

Close

Opening Options

Different options to open legislation in order to view more content on screen at once

Close

More Resources

Access essential accompanying documents and information for this legislation item from this tab. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as enactedversion that was used for the print copy
  • lists of changes made by and/or affecting this legislation item
  • confers power and blanket amendment details
  • all formats of all associated documents
  • correction slips
  • links to related legislation and further information resources
Close

More Resources

Use this menu to access essential accompanying documents and information for this legislation item. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as enacted version that was used for the print copy
  • correction slips

Click 'View More' or select 'More Resources' tab for additional information including:

  • lists of changes made by and/or affecting this legislation item
  • confers power and blanket amendment details
  • all formats of all associated documents
  • links to related legislation and further information resources