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Finance Act 2002

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This is the original version (as it was originally enacted).

Part 5Supplementary provisions

Artificially inflated claims for deduction or tax credit

24(1)To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it shall be disregarded in determining for an accounting period the amount of—

(a)any relief to which a company is entitled under paragraph 14, 15 or 21, and

(b)any tax credit to which a company is entitled under this Schedule.

(2)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—

(a)relief under paragraph 14, 15 or 21 to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled; or

(b)a tax credit under this Schedule to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled.

(3)In this paragraph “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Refunds of contributions to independent research and development

25(1)This paragraph applies where a company receives a payment refunding the whole or any part of—

(a)any qualifying expenditure on sub-contracted research and development to which paragraph 6(3) applies (research sub-contracted to charities, universities and scientific research organisations), or

(b)any qualifying expenditure on contributions to independent research and development (see paragraph 12),

in respect of which it obtains relief under this Schedule.

(2)The appropriate amount shall be treated as income of the company chargeable to tax under Case I of Schedule D for the accounting period in which the payment is made.

(3)Where, by virtue paragraph 23(3) (profits of life assurance business chargeable to tax under Case VI of Schedule D), the relief obtained in respect of the contribution or expenditure concerned is a deduction in computing for tax purposes the profits of a part of the life assurance business of the company—

(a)sub-paragraph (2) does not apply, and

(b)the appropriate amount shall be treated as income referrable to that part which is chargeable to tax under Case VI of Schedule D for the accounting period in which the payment is made.

(4)For this purpose “the appropriate amount” means—

(a)where the company qualifies as a small or medium-sized enterprise in the accounting period in which it obtains the relief—

(i)if it is entitled to relief under Schedule 20 to the Finance Act 2000 (c. 17) in respect of the qualifying expenditure refunded, 50% of the payment, and

(ii)in any other case, 150% of the payment; and

(b)where the company does not so qualify—

(i)if the relief falls within paragraph 21(2) (relief for qualifying expenditure deductible in computing profits for tax purposes), 50% of the payment, and

(ii)in any other case, 150% of the payment.

Funding of tax credits

26Section 10 of the Exchequer and Audit Departments Act 1866 (c. 39) (gross revenues to be paid to Exchequer) shall be construed as allowing the Commissioners of Inland Revenue to deduct payments for or in respect of tax credits under this Schedule before causing the gross revenues of their department to be paid to the account mentioned in that section.

Interpretation

27(1)In this Schedule—

  • “the Inland Revenue” means any officer of the Board;

  • “life assurance business” has the meaning given in section 431(2) of the Taxes Act 1988;

  • “national insurance contributions” means contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4) or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7);

  • PAYE regulations” means regulations under section 203 of the Taxes Act 1988;

  • “payment period” has the meaning given in paragraph 17(2) of Schedule 20 to the Finance Act 2000 (c. 17);

  • “research and development” has the meaning given by section 837A of the Taxes Act 1988;

  • “surrenderable loss” has the meaning given in paragraph 16(2).

(2)Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this Schedule.

(3)For the purposes of this Schedule a company not within the charge to corporation tax that incurs qualifying expenditure is treated as having such accounting periods as it would have—

(a)if it carried on a trade consisting of the qualifying R&D activity on which the expenditure is incurred, and

(b)if it had started to carry on that trade when it started to carry on that activity.

Commencement and transitional provision

28(1)This Schedule applies only to expenditure incurred on or after such day (being a day not earlier than 1st April 2002) as the Treasury may by order appoint.

(2)For the purposes of determining the expenditure incurred on or after that day no account shall be taken of section 401 of the Taxes Act 1988 (pre-trading expenditure treated as incurred when trading begins).

(3)Paragraph 1(1) (requirement of minimum amount of qualifying expenditure in an accounting period) applies to an accounting period beginning before and ending on or after that day as if so much of the period as falls on or after that day were a separate accounting period.

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