Corporation Tax Act 2009 (c. 4)

Part 13 U.K. Additional relief for expenditure on research and development

Chapter 3 U.K. Relief for SMEs: R&D sub-contracted to SME

Relief U.K.

1063 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 conditions A, B and C.

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

(3) Condition B is that the company meets the R&D threshold in the period (see section 1064).

(4) Condition C is that the company has qualifying Chapter 3 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits for the period of a trade carried on by the company.

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

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

(7) The amount of the additional deduction is 30% of the qualifying Chapter 3 expenditure.

(8) For the meaning of “qualifying Chapter 3 expenditure” see section 1065.

(9) See also—

(a) section 1082 for provision about research and development expenditure of group companies, and

(b) section 1083 for provision about refunds of qualifying Chapter 3 expenditure.

Threshold U.K.

1064 R&D threshold U.K.

(1) For the purposes of this Chapter a company meets the R&D threshold in an accounting period if its total qualifying R&D expenditure for the period is at least—

(a) £10,000, if the accounting period is a period of 12 months, or

(b) the amount given by subsection (2), if the accounting period is a period of less than 12 months.

(2) The amount referred to in subsection (1)(b) is—

where X is the number of days in the accounting period.

(3) A company's “total qualifying R&D expenditure” for an accounting period is the sum of—

(a) its qualifying Chapter 2 expenditure (see section 1051),

(b) its qualifying Chapter 3 expenditure (see section 1065), and

(c) its qualifying Chapter 4 expenditure (see section 1070),

that is deductible in the period.

(4) A company's expenditure is deductible in an accounting period if it is allowable as a deduction in calculating for corporation tax purposes the profits for the period of a trade carried on by the company.

(5) Expenditure allowable as a deduction for the purposes of subsection (4) includes expenditure so allowable because of section 61 (pre-trading expenses).

Qualifying expenditure U.K.

1065 Qualifying Chapter 3 expenditure U.K.

(1) For the purposes of this Part a company's “qualifying Chapter 3 expenditure” means expenditure incurred by it that meets conditions A and B.

(2) Condition A is that the expenditure is incurred on research and development contracted out to the company by—

(a) a large company, or

(b) any person otherwise than in the course of carrying on a chargeable trade.

(3) A “chargeable trade” is—

(a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of Part 3 of this Act.

(4) Condition B is that the expenditure is expenditure to which section 1066 or 1067 applies.

1066 Expenditure on sub-contracted R&D undertaken in-house U.K.

(1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met.

(2) Condition A is that the research and development is undertaken by the company itself.

(3) Condition B is that the expenditure is—

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

(b) incurred on software 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).

(4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company.

(5) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development.

1067 Expenditure on sub-contracted R&D not undertaken in-house U.K.

(1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met.

(2) Condition A is that the expenditure is incurred in making payments to—

(a) a qualifying body,

(b) an individual, or

(c) a firm, each member of which is an individual,

in respect of research and development contracted out by the company to the body, individual or firm.

(3) Condition B is that the research and development is undertaken by the body, individual or firm itself.

(4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company.

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