Finance Act 2008

Section 29

SCHEDULE 10 Cap on R&D aid

Part 1 Calculation of total R&D aid

Calculation of total R&D aid

1 For the purposes of section 29, “total R&D aid”, in respect of expenditure by a company (the “claimant”) attributable to a research and development project, is calculated as follows—

where—

• A is total R&D aid,

• TC is the tax credits (see paragraph 2),

• R is the actual reduction in tax liability (see paragraph 3),

• P is the potential relief (see paragraph 4),

• CT is the main rate of corporation tax at the time when the total R&D aid is calculated, and

• N is the notional relief (see paragraph 5).

2 (1) In paragraph 1 “the tax credits” means the aggregate of the tax credits that have been paid to the claimant under paragraph 18 of Schedule 20 to FA 2000 or paragraph 18 of Schedule 13 to FA 2002 in respect of expenditure attributable to the project.

(2) A tax credit that has been claimed but not paid or applied shall be treated for the purposes of sub-paragraph (1) as if it had been paid, unless the claimant has been informed by Her Majesty’s Revenue and Customs that the tax credit will not be paid or applied.

3 In paragraph 1 “the actual reduction in tax liability” means the aggregate of—

(a) the amounts by which the liability of the claimant to pay corporation tax has been reduced in any accounting period in consequence of R&D relief in respect of expenditure attributable to the project, and

(b) the amounts by which the liability of any other company to pay corporation tax has been reduced in any accounting period in consequence of a surrender to the company by the claimant under section 402 of ICTA (surrender of relief between members of groups and consortia) of a loss arising in consequence of R&D relief in respect of expenditure attributable to the project.

4 (1) In paragraph 1 “the potential relief” means the aggregate amount of any R&D relief (other than a tax credit)—

(a) in respect of which the claimant has made a claim or election, but

(b) which, as at the day on which the total R&D aid is calculated, has not been brought into account by the claimant or by any other company.

(2) R&D relief shall not be counted for the purposes of sub-paragraph (1) if the claimant has been informed by Her Majesty’s Revenue and Customs that it is not entitled to the relief.

5 (1) In paragraph 1 “the notional relief” is the aggregate amount of relief that the claimant could have claimed under Schedule 12 to FA 2002 (tax relief for expenditure on R&D: large companies etc) in any accounting period in respect of qualifying R&D expenditure attributable to the project if it had been a large company throughout the accounting period.

(2) In this paragraph—

• “large company” has the meaning given in paragraph 2 of Schedule 12 to FA 2002, and

• “qualifying R&D expenditure” means expenditure that, in the accounting period in question, was—

  (a)

  qualifying R&D expenditure within the meaning of Schedule 20 to FA 2000, or

  (b)

  qualifying expenditure within the meaning of Schedule 13 to FA 2002.

Interpretation

6 In this Schedule “R&D relief” means any relief or tax credit under—

(a) Schedule 20 to FA 2000 (tax relief for expenditure by SMEs on research and development), or

(b) Schedule 13 to FA 2002 (tax relief for expenditure on vaccine research etc).

Transitional provision

7 For the purpose of any calculation in accordance with paragraph 1, no account shall be taken of any R&D relief in respect of expenditure incurred before the day on which this Schedule comes into force.

Part 2 Consequential amendments

8 In Schedule 20 to FA 2000 (tax relief for expenditure by SMEs on research and development), in paragraph 1 (entitlement), insert at the end—

“(5) This paragraph has effect subject to section 29 of the Finance Act 2008 (cap on R&D aid).”

9 In Schedule 12 to FA 2002 (tax relief for expenditure on research and development)—

(a) after paragraph 10B insert—

“Capped SME expenditure

10C For the purposes of this Schedule, the SME’s “capped SME expenditure” is any expenditure—

(a) in respect of which the company is not entitled to relief under Schedule 20 to the Finance Act 2000 by reason only of section 29 of the Finance Act 2008 (cap on R&D aid), and

(b) which satisfies paragraph 10B(a) and (c).”,

(b) in paragraph 11(3)(c), insert at the end “and capped SME expenditure (see paragraph 10C)”, and

(c) in paragraph 15(1)(d), insert at the end “or capped SME expenditure”.

10 In Schedule 13 to FA 2002 (tax relief for expenditure on vaccine research etc), in paragraph 1 (entitlement), insert at the end—

“(3) This paragraph has effect subject to section 29 of the Finance Act 2008 (cap on R&D aid).”