Corporation Tax Act 2009

Chapter 2 U.K. Relief for SMEs: cost of R&D incurred by SME

Introductory U.K.

1043 Overview of Chapter U.K.

(1) This Chapter provides for relief for companies which are small or medium-sized enterprises for expenditure on—

(a) in-house direct research and development, or

(b) contracted out research and development,

where the cost of the research and development is incurred by the company.

(2) The reliefs available are—

(a) an additional deduction under section 1044, or

(b) a deemed trading loss under section 1045.

(3) Sections 1046 to 1053 contain provision relevant to the reliefs available under this Chapter, namely—

(a) provision preventing a company from making a claim or election for relief if it is not a going concern (see section 1046),

(b) information about elections under section 1045 for a deemed trading loss (see section 1047),

(c) information about the treatment of a deemed trading loss (see section 1048),

(d) a restriction on consortium relief where relief is obtained (see section 1049),

F1 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .and

(f) provision about when a company's expenditure is “qualifying Chapter 2 expenditure” for those purposes (see sections 1051 to 1053).

(4) Sections 1054 to 1062 deal with R&D tax credits which can be claimed if a company—

(a) obtains relief under this Chapter, and

(b) makes, or is treated as making, a trading loss.

Textual Amendments

F1 S. 1043(3)(e) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(2)

Reliefs U.K.

1044 Additional deduction in calculating profits of trade U.K.

(1) A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to D.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

F2 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the company carries on a trade in the period.

(5) Condition D is that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.

(6) For the company to obtain the relief it must make a claim.

See section 1046 (which prevents a company from making a claim if it is not a going concern).

(7) The relief is an additional deduction in calculating the profits of the trade for the period.

(8) The amount of the additional deduction is [F3 86%] of the qualifying Chapter 2 expenditure.

(9) This section is subject to —

[F4 (a) section 1045A (requirement to make a claim notification);]

[F4 (b)] section 1113 (cap on R&D aid in relation to a particular research and development project).

(10) For the meaning of “qualifying Chapter 2 expenditure” see section 1051.

Textual Amendments

F2 S. 1044(3) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(3)

F3 Word in s. 1044(8) substituted (in relation to expenditure incurred on or after 1.4.2023) by Finance Act 2023 (c. 1), s. 4(3)(a)(4)

F4 S. 1044(9)(a) inserted and words renumbered as s. 1044(9)(b) (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(2), 20

1045 Alternative treatment for pre-trading expenditure: deemed trading loss U.K.

(1) A company is entitled to corporation tax relief for an accounting period if it meets conditions AF5 ... and C.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

F6 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the company has incurred qualifying Chapter 2 expenditure in the period which—

(a) is not allowable as a deduction in calculating for corporation tax purposes the profits of a trade carried on by it at the time the expenditure was incurred, but

(b) would have been so allowable had it, at that time, been carrying on a trade consisting of the activities in respect of which the expenditure was incurred.

(5) For the company to obtain the relief it must make an election.

See section 1046 (which prevents a company from making an election if it is not a going concern).

(6) The relief is that the company is treated as if it had made a trading loss in the period.

(7) The trading loss is equal to [F7 186%] of the qualifying Chapter 2 expenditure.

(8) If a company makes an election under this section in respect of qualifying Chapter 2 expenditure, section 61 (pre-trading expenses) does not apply to the expenditure.

(9) This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).

(10) For the meaning of “qualifying Chapter 2 expenditure” see section 1051.

(11) See also section 1137, which makes provision about the accounting periods of a company which is not within the charge to corporation tax.

Textual Amendments

F5 Word in s. 1045(1) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(4)(a)

F6 S. 1045(3) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(4)(b)

F7 Word in s. 1045(7) substituted (in relation to expenditure incurred on or after 1.4.2023) by Finance Act 2023 (c. 1), s. 4(3)(b)(4)

Reliefs: further provision U.K.

[F8 1045A Requirement to make a claim notification U.K.

(1) A company may not make a claim under section 1044(6) (an “additional deduction claim”) after the end of the claim notification period unless—

(a) the company has made an R&D claim during the period of three years ending with the last day of the claim notification period,

(b) the company makes a claim notification in respect of the additional deduction claim within the claim notification period, or

(c) the accounting period in respect of which the additional deduction claim is made falls within the same period of account as another accounting period in respect of which the company has made an R&D claim or a claim notification.

(2) For the purposes of subsection (1)(a) ignore any R&D claim for an accounting period beginning before 1 April 2023 that is included in the company’s company tax return only by virtue of an amendment made on or after that date (see paragraph 83B(2) of Schedule 18 to FA 1998).]

Textual Amendments

F8 S. 1045A 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(3), 20

1046 Relief only available where company is going concern U.K.

(1) A company may only make—

(a) a claim under section 1044, or

(b) an election under section 1045,

at a time when it is a going concern.

(2) For the purposes of this section a company is a going concern if—

(a) its latest published accounts were prepared on a going concern basis, and

(b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F9 ....

[F10 This is subject to subsection (2A).]

[F11 (2A) A company is not a going concern at any time if it is in administration or liquidation at that time.

(2B) For the purposes of this section a company is in administration if—

(a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(2C) For the purposes of this section a company is in liquidation if—

(a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.]

[F12 (2D) For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.

(2E) For the purposes of this section—

(a) a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (2D);

(b) A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).]

(3) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Textual Amendments

F9 Words in s. 1046(2)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 18

F10 Words in s. 1046(2) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 10(2)

F11 S. 1046(2A)-(2C) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 10(3)

F12 S. 1046(2D)(2E) 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. 17(2), 20

1047 Elections under section 1045 U.K.

(1) An election under section 1045 must specify the accounting period in respect of which it is made.

(2) The election must be made by notice in writing to an officer of Revenue and Customs.

(3) The notice must be given before the end of the period of two years beginning immediately after the end of the accounting period to which the election relates.

1048 Treatment of deemed trading loss under section 1045 U.K.

(1) This section applies if under section 1045 a company is treated as making a trading loss in an accounting period [F13 (“the deemed loss-making period”)].

(2) The trading loss may not be [F14 deducted from] profits of a preceding accounting period under [F15 section 37(3)(b) or 42 of CTA 2010] unless the company is entitled to relief under section 1045 for the earlier period.

(3) Subsection (4) applies if—

[F16 (za) the deemed loss-making period begins before 1 April 2017,]

(a) the company begins, in [F17 the deemed loss-making period] or a later period, to carry on a trade, and

(b) the trade is derived from the research and development in relation to which the relief mentioned in subsection (1) was obtained.

(4) In that case, so far as—

(a) the company has not obtained relief in respect of the trading loss under any other provision, and

(b) the loss has not been surrendered under [F18 Part 5 of CTA 2010 (group relief)],

the trading loss is to be treated as if it were a loss of that trade brought forward under [F19 section 45 of CTA 2010] (relief of trading losses against future trading profits).

[F20 (4A) Subsection (4B) applies if—

(a) the deemed loss-making period begins on or after 1 April 2017,

(b) the company—

(i) begins to carry on a trade in the deemed loss-making period which it continues to carry on in the following accounting period, or

(ii) begins to carry on a trade in an accounting period after the deemed-loss making period, and

(c) the trade is derived from the research and development in relation to which the relief mentioned in subsection (1) was obtained.

(4B) In that case, so far as—

(a) the company has not obtained relief in respect of the trading loss under any other provision, and

(b) the loss has not been surrendered under Part 5 of CTA 2010 (group relief) (surrender of relief to group or consortium members),

the trading loss is to be treated as if it were a loss of that trade brought forward under the relevant provision (see subsection (4C)) to the relevant period (see subsection (4D).

(4C) In subsection (4B) “the relevant provision” is—

(a) section 45A(4) of CTA 2010 if—

(i) the trade is not a ring fence trade within the meaning of Part 8 of CTA 2010 (see section 277 of that Act), and

(ii) relief under section 37 of CTA 2010 would not be unavailable by reason of section 44 of that Act for a loss (assuming there was one) made in the trade in the relevant period (see subsection (4D), and

(b) section 45B(2) of CTA 2010 if either of the conditions in paragraph (a) is not met.

(4D) In subsection (4B) and (4C) “the relevant period” means—

(a) in a case where the company began the trade in the deemed loss-making period and continued to carry on the trade in the following accounting period, that following accounting period, and

(b) in a case where the company began the trade in an accounting period after the deemed loss-making period, the accounting period in which the company began the trade.]

(5) [F21 Subsections (4) and (4B) are] subject to section 1062 (restriction on losses carried forward where tax credit claimed).

Textual Amendments

F13 Words in s. 1048(1) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 133(2)

F14 Words in s. 1048(2) 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. 667(2)(a) (with Sch. 2)

F15 Words in s. 1048(2) 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. 667(2)(b) (with Sch. 2)

F16 S. 1048(3)(za) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 133(3)(a)

F17 Words in s. 1048(3)(a) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 133(3)(b)

F18 Words in s. 1048(4)(b) 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. 667(3)(a) (with Sch. 2)

F19 Words in s. 1048(4) 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. 667(3)(b) (with Sch. 2)

F20 S. 1048(4A)-(4D) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 133(4)

F21 Words in s. 1048(5) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 133(5)

1049 Restriction on consortium relief U.K.

(1) This section applies if—

(a) a company claims relief under section 1044 or elects to obtain relief under section 1045 in respect of an accounting period,

(b) at any time during the period the company is owned by a consortium, and

(c) at least one of the members of the consortium is a large company.

(2) The amount of the relief obtained in respect of the accounting period may not be surrendered by the company to another company, for the purposes of a consortium group relief claim, unless the other company is a small or medium-sized enterprise.

(3) A “consortium group relief claim” means a claim to group relief [F22 based on consortium condition 1, 2 or 3 in sections 132 and 133 of CTA 2010] (group relief available between members of consortia).

Textual Amendments

F22 Words in s. 1049(3) 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. 668 (with Sch. 2)

Threshold U.K.

F23 1050 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F23 S. 1050 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(5)

Qualifying expenditure U.K.

1051 Qualifying Chapter 2 expenditure U.K.

For the purposes of this Part a company's “qualifying Chapter 2 expenditure” means—

(a) its qualifying expenditure on in-house direct research and development (see section 1052), and

(b) its qualifying expenditure on contracted out research and development (see section 1053).

1052 Qualifying expenditure on in-house direct R&D U.K.

(1) A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of [F24 conditions A, B, D and E] is met.

(2) Condition A is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software [F25 , data licences, cloud computing services] or consumable items (see section 1125),

(c) qualifying expenditure on externally provided workers (see section 1127), or

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(3) Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.

F26 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(6) Condition E is that the expenditure is not subsidised (see section 1138).

(7) See sections 1124, 1126 [F27 to 1126B] and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development.

Textual Amendments

F24 Words in s. 1052(1) substituted (with effect in accordance with s. 13(8) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 13(2)(a)

F25 Words in s. 1057(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. 6(a), 20

F26 S. 1052(4) 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(2)(b)

F27 Words in s. 1052(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(g)

1053 Qualifying expenditure on contracted out R&D U.K.

(1) A company's “qualifying expenditure on contracted out research and development” means expenditure—

(a) which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and

(b) in relation to which each of [F28 conditions A, C and D] is met.

(2) Condition A is that the expenditure is attributable to relevant research and development undertaken on behalf of the company.

F29 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(5) Condition D is that the expenditure is not subsidised (see section 1138).

(6) See sections 1124, 1126 [F30 to 1126B] and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Textual Amendments

F28 Words in s. 1053(1)(b) substituted (with effect in accordance with s. 13(8) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 13(3)(a)

F29 S. 1053(3) 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(3)(b)

F30 Words in s. 1053(6) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(h)

Tax credit: entitlement and payment U.K.

1054 Entitlement to and payment of tax credit U.K.

(1) A company is entitled to an R&D tax credit for an accounting period if it has a Chapter 2 surrenderable loss in the period (see section 1055).

(2) For the company to obtain an R&D tax credit in respect of all or part of the Chapter 2 surrenderable loss it must make a claim.

See section 1057 (which prevents a company from making a claim if it is not a going concern).

(3) The amount of an R&D tax credit to which the company is entitled is determined in accordance with section 1058.

(4) If a company makes a claim for an R&D tax credit to which it is entitled for an accounting period, an officer of Revenue and Customs must pay to the company the amount of the credit.

This is subject to section 1060.

(5) This section is subject to—

[F31 (a) section 1054A (requirement to make a claim notification);]

[F31 (b)] section 1113 (cap on R&D aid in relation to a particular research and development project)

(6) See also section 1062, which restricts the carry forward of losses where a company claims an R&D tax credit.

Textual Amendments

F31 S. 1054(5)(a) inserted and words renumbered as s. 1054(5)(b) (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(4), 20

[F32 1054A Requirement to make a claim notification U.K.

(1) A company may not make a claim under section 1054(2) (an “R&D tax credit claim”) after the end of the claim notification period unless—

(a) the company has made an R&D claim during the period of three years ending with the last day of the claim notification period,

(b) the company makes a claim notification in respect of the R&D tax credit claim within the claim notification period, or

(c) the accounting period in respect of which the R&D tax credit claim is made falls within the same period of account as another accounting period in respect of which the company has made an R&D claim or a claim notification.

(2) For the purposes of subsection (1)(a) ignore any R&D claim for an accounting period beginning before 1 April 2023 that is included in the company’s company tax return only by virtue of an amendment made on or after that date (see paragraph 83B(2) of Schedule 18 to FA 1998).]

Textual Amendments

F32 S. 1054A 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(5), 20

1055 Meaning of “Chapter 2 surrenderable loss” U.K.

(1) For the purposes of this Chapter a company has a “Chapter 2 surrenderable loss” if in an accounting period—

(a) it obtains an additional deduction under section 1044 in calculating the profits of a trade and it makes a trading loss in that period in the trade, or

(b) it is treated as making a trading loss under section 1045.

(2) If relief is obtained under section 1044 the amount of the Chapter 2 surrenderable loss is—

(a) so much of the trading loss as is unrelieved, or

(b) if less, [F33 186%] of the qualifying Chapter 2 expenditure in respect of which the relief was obtained.

(3) If relief is obtained under section 1045 the amount of the Chapter 2 surrenderable loss is so much of the trading loss as is unrelieved.

Textual Amendments

F33 Word in s. 1055(2)(b) substituted (in relation to expenditure incurred on or after 1.4.2023) by Finance Act 2023 (c. 1), s. 4(3)(c)(4)

Modifications etc. (not altering text)

C1 S. 1055 excluded by 2010 c. 4, s. 357PC (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

1056 Amount of trading loss which is “unrelieved” U.K.

(1) This section applies for the purposes of section 1055.

(2) The amount of a trading loss that is “unrelieved” is the amount of the loss reduced by—

(a) any relief that was or could have been obtained by the company making a claim under [F34 section 37(3)(a) of CTA 2010 to deduct the loss from total] profits of the same accounting period,

(b) any other relief obtained by the company in respect of the loss, including relief under [F35 section 37(3)(b) or 42 of CTA 2010 (losses deducted from] profits of an earlier accounting period), and

(c) any loss surrendered under [F36 Part 5 [F37 or Part 5A] of CTA 2010] (surrender of relief to group or consortium members).

(3) No account is to be taken for this purpose of any losses—

(a) brought forward from an earlier accounting period under [F38 section 45[F39 , 45A or 45B] of CTA 2010], or

(b) carried back from a later accounting period under [F40 section 37(3)(b) or 42] of that Act.

Textual Amendments

F34 Words in s. 1056(2)(a) 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. 669(2)(a) (with Sch. 2)

F35 Words in s. 1056(2)(b) 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. 669(2)(b) (with Sch. 2)

F36 Words in s. 1056(2)(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. 669(2)(c) (with Sch. 2)

F37 Words in s. 1056(2)(c) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 134(a)

F38 Words in s. 1056(3)(a) 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. 669(3)(a) (with Sch. 2)

F39 Words in s. 1056(3)(a) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 134(b)

F40 Words in s. 1056(3)(b) 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. 669(3)(b) (with Sch. 2)

Modifications etc. (not altering text)

C2 S. 1056 applied by 2010 c. 4, s. 357PC (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

1057 Tax credit only available where company is going concern U.K.

(1) A company may only make a claim under section 1054 at a time when it is a going concern.

(2) If a company ceases to be a going concern after making a claim under section 1054, it is treated as if it had not made the claim (and accordingly there is treated as having been no payment of R&D tax credit to carry interest under section 826 of ICTA).

(3) Subsection (2) does not apply so far as the claim relates to an amount that was paid or applied before the company ceased to be a going concern.

(4) For the purposes of this section a company is a going concern if—

(a) its latest published accounts were prepared on a going concern basis, and

(b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F41 ....

[F42 This is subject to subsection (4A).]

[F43 (4A) A company is not a going concern at any time if it is in administration or liquidation at that time.

(4B) For the purposes of this section a company is in administration if—

(a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(4C) For the purposes of this section a company is in liquidation if—

(a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.]

[F44 (4D) For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.

(4E) For the purposes of this section—

(a) a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (4D);

(b) A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).]

(5) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Textual Amendments

F41 Words in s. 1057(4)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 19

F42 Words in s. 1057(4) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 11(2)

F43 S. 1057(4A)-(4C) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 11(3)

F44 S. 1057(4D)(4E) 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. 17(3), 20

Amount of tax credit U.K.

1058 Amount of tax credit U.K.

(1) The amount of the R&D tax credit to which a company is entitled for an accounting period is [F45 the lesser of]—

(a) [F46 10%] of the amount of the Chapter 2 surrenderable loss for the period, F47 ... [F48 and]

[F48 (aa) the amount given by subsection (1A).]

F47 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F49 (1A) The amount given by this subsection is the sum of—

(a) £20,000, and

(b) the amount produced by multiplying by three (“the multiplier”) the company's relevant expenditure on workers for payment periods ending in the accounting period (see section 1058A).

(1B) If the accounting period is less than 12 months, the amount specified in subsection (1A)(a) is proportionately reduced.

(1C) Subsection (1)(aa) does not apply if section 1058D (exceptions to tax credit cap) applies in relation to the company for the accounting period.]

[F50 (2) The Treasury may by regulations—

(a) replace the percentage for the time being specified in subsection (1)(a) with a different percentage;

(b) replace the amount for the time being specified in subsection (1A)(a) with a different amount;

(c) replace the multiplier for the time being specified in subsection (1A)(b) with a different multiplier.]

(3) An order under subsection (2) may contain incidental, supplemental, consequential and transitional provision and savings.

Textual Amendments

F45 Words in s. 1058(1) inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 2(2)(a)

F46 Word in s. 1058(1)(a) substituted (in relation to expenditure incurred on or after 1.4.2023) by Finance Act 2023 (c. 1), s. 4(3)(d)(4)

F47 S. 1058(1)(b) and the word immediately preceding it omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 15(2)

F48 S. 1058(1)(aa) and word inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 2(2)(b)

F49 S. 1058(1A)-(1C) inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 2(3)

F50 S. 1058(2) substituted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 2(4)

Modifications etc. (not altering text)

C3 S. 1058(1) excluded by 2010 c. 4, s. 357PD (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

[F51 1058A Relevant expenditure on workers U.K.

(1) For the purposes of section 1058, the amount of a company's relevant expenditure on workers for a payment period is the sum of—

(a) the total amount of the company's PAYE and NIC liabilities for the payment period (see section 1058B) less any amount deducted in accordance with section 1058C (avoiding double counting of PAYE and NIC liabilities),

(b) if the company is connected with another company and has incurred qualifying expenditure on externally provided workers (see section 1127), the relevant portion of any staffing costs for the payment period incurred by the connected company in providing any of those workers for the company (see subsection (2)), and

(c) if the company is connected with another company and has incurred qualifying expenditure on contracted out research and development (see section 1053), any staffing costs for the payment period incurred by the connected company in undertaking any of that contracted out research and development on behalf of the company (see subsection (3)).

(2) The relevant portion of any staffing costs for a payment period incurred by a connected company in providing externally provided workers for a company is the sum of the amounts to be determined in the case of each of those workers as follows—

• Step 1 Calculate the amount of expenditure that—

  (a)

  has been incurred by the connected company in providing the externally provided worker for the company,

  (b)

  has been incurred on staffing costs (see section 1123), and

  (c)

  forms part of the total amount of the connected company's PAYE and NIC liabilities for the payment period.

• Step 2 Calculate the percentage (“the appropriate percentage”) given by—

  

  where—

  R is the amount of the company's qualifying expenditure on the externally provided worker that has been taken into account in calculating the amount of the company's qualifying Chapter 2 expenditure (see section 1051) for the payment period, and

  T is the total amount of the company's qualifying expenditure on the externally provided worker (see section 1127) for the payment period.

• Step 3 The amount to be determined in the case of the externally provided worker is the appropriate percentage of the amount given by step 1.

(3) The staffing costs for a payment period incurred by a connected company in undertaking contracted out research and development on behalf of a company is the amount of expenditure that—

(a) has been incurred by the connected company in undertaking relevant research and development on behalf of the company,

(b) has been incurred on staffing costs (see section 1123), and

(c) forms part of the total amount of the connected company's PAYE and NIC liabilities for the payment period.

(4) If, for the purposes of step 1(c) of subsection (2) or paragraph (c) of subsection (3), it is necessary to calculate the amount of a connected company's PAYE and NIC liabilities for a payment period that falls within (but is shorter than) the connected company's payment period, the total amount for the connected company's payment period is proportionately reduced.

Textual Amendments

F51 Ss. 1058A-1058D inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 3

1058B Total amount of company's PAYE and NIC liabilities U.K.

(1) For the purposes of section 1058A, the total amount of a company's PAYE and NIC liabilities for a payment period is the sum of—

(a) amount A, and

(b) amount B.

(2) Amount A is the amount of income tax for which the company is required to account to an officer of Revenue and Customs for the payment period under PAYE regulations.

(3) In calculating amount A disregard any deduction the company is authorised to make in respect of—

(a) child tax credit;

(b) working tax credit.

(4) Amount B is the amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the payment period.

(5) In calculating amount B disregard any deduction the company is authorised to make in respect of—

(a) statutory maternity pay;

(b) statutory adoption pay;

(c) statutory paternity pay;

(d) statutory shared parental pay;

(e) statutory parental bereavement pay;

(f) child tax credit;

(g) working tax credit.

Textual Amendments

F51 Ss. 1058A-1058D inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 3

1058C Avoiding double counting of PAYE and NIC liabilities U.K.

When determining for the purposes of section 1058 a company's relevant expenditure on workers for a payment period (see section 1058A), deduct the following from the total amount of the company's PAYE and NIC liabilities for the payment period—

(a) the relevant portion of any staffing costs for the payment period incurred by the company in providing externally provided workers for a connected company (within the meaning given by section 1058A(2));

(b) any staffing costs for the payment period incurred by the company in undertaking contracted out research and development on behalf of a connected company (within the meaning given by section 1058A(3)).

Textual Amendments

F51 Ss. 1058A-1058D inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 3

1058D Exceptions to tax credit cap U.K.

(1) This section applies (and accordingly, section 1058(1)(aa) does not apply) in relation to a company for an accounting period if the company meets conditions A and B.

(2) A company meets condition A for an accounting period if, during the period, the company is engaged in—

(a) taking, or preparing to take, steps in order that relevant intellectual property will be created by it,

(b) creating relevant intellectual property, or

(c) performing a significant amount of management activity in relation to relevant intellectual property it holds.

(3) For the purposes of subsection (2)—

(a) a company is only engaged in an activity mentioned in paragraph (a), (b) or (c) of subsection (2) if the activity is wholly or mainly undertaken by employees of the company;

(b) intellectual property is “relevant” intellectual property in relation to a company if the whole or the greater part (in terms of value) of it is created by the company;

(c) intellectual property is created by a company if it is created in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).

(4) For the purposes of this section—

• “intellectual property” means—

  (a)

  any patent, trade mark, registered design, copyright, design right or plant breeder's right,

  (b)

  any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a), or

  (c)

  any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value;

• “management activity”, in relation to intellectual property, means formulating plans and making decisions in relation to the development or exploitation of the intellectual property.

(5) A company meets condition B for an accounting period if the amount given by subsection (6) (if any) does not exceed 15% of the company's qualifying Chapter 2 expenditure (see section 1051) for the period.

(6) The amount given by this subsection is the sum of the following incurred by the company in the period—

(a) qualifying expenditure on externally provided workers (see section 1127), where the company, the staff provider and (if different) the staff controller (or staff controllers)—

(i) are all connected (see section 1129), or

(ii) have jointly elected (under section 1130) that section 1129 is to apply to them as if they were all connected;

(b) qualifying expenditure on contracted out research and development (see section 1053) where the company and the sub-contractor—

(i) are connected (see section 1134), or

(ii) have jointly elected (under section 1135) that section 1134 is to apply to them as if they were connected.

(7) The Treasury may by regulations replace the percentage for the time being specified in subsection (5) with a different percentage.]

Textual Amendments

F51 Ss. 1058A-1058D inserted (with effect in accordance with Sch. 3 para. 4 of the amending Act) by Finance Act 2021 (c. 26), Sch. 3 para. 3

F52 1059 Total amount of company's PAYE and NIC liabilities U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F52 S. 1059 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 15(3)

Supplementary U.K.

1060 Payment of tax credit U.K.

(1) This section applies if an R&D tax credit for an accounting period is payable to a company under this Chapter.

(2) The amount payable in respect of—

(a) the R&D tax credit, or

(b) interest on the credit payable under section 826 of ICTA,

may be applied in discharging any liability of the company to pay corporation tax.

(3) So far as the amount is so applied, the duty of the officer of Revenue and Customs to pay the credit under section 1054(4) is discharged.

(4) Subsection (5) applies if the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs.

(5) In that case—

(a) no payment in respect of the R&D tax credit for the period need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but

(b) the officer may make a payment on a provisional basis of such amount as the officer thinks fit.

(6) No payment need be made in respect of the R&D tax credit if the company has outstanding PAYE and NIC liabilities for the period.

(7) A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay—

(a) under PAYE regulations, or

(b) in respect of Class 1 national insurance contributions,

for payment periods ending in the accounting period.

1061 Tax credit payment not income of company U.K.

A payment in respect of an R&D tax credit under this Chapter is not income of the company for any tax purposes.

1062 Restriction on losses carried forward where tax credit claimed U.K.

(1) This section applies if a company claims an R&D tax credit to which it is entitled for an accounting period.

(2) For the purposes of [F53 [F54 sections 45, 45A and 45B] of CTA 2010] (relief of trading losses against future F55 ... profits) the company's trading loss for the period is treated as reduced by the amount of the surrendered loss for the period.

(3) The “amount of the surrendered loss” for the period means the amount of the Chapter 2 surrenderable loss in respect of which the company claims an R&D tax credit for the period.

Textual Amendments

F53 Words in s. 1062(2) 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. 670 (with Sch. 2)

F54 Words in s. 1062(2) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 135(a)

F55 Word in s. 1062(2) omitted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 135(b)

Modifications etc. (not altering text)

C4 S. 1062(2) excluded by 2010 c. 4, s. 357PE (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

C5 S. 1062(3) excluded by 2010 c. 4, s. 357PE (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)