Corporation Tax Act 2009

Chapter 5 Relief for large companies

Relief

1074 Additional deduction in calculating profits of trade

(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 large company throughout the period.

(3) Condition B is that the company meets the R&D threshold in the period (see section 1075).

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

(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 5 expenditure which—

(a) is incurred by the company, and

(b) is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.

(8) For the meaning of “qualifying Chapter 5 expenditure” see section 1076.

(9) See also—

(a) section 1080 for special provision about insurance companies,

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

(c) section 1083 for provision about refunds of qualifying Chapter 5 expenditure.

Threshold

1075 R&D threshold

(1) For the purposes of this Chapter a company meets the R&D threshold in an accounting period if its qualifying Chapter 5 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 qualifying Chapter 5 expenditure is “for” the 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.

(4) Expenditure allowable as a deduction for the purposes of subsection (3) includes expenditure so allowable because of section 61 (pre-trading expenses).

(5) For the meaning of “qualifying Chapter 5 expenditure” see section 1076.

Qualifying expenditure

1076 Qualifying Chapter 5 expenditure

For the purposes of this Part a company’s “qualifying Chapter 5 expenditure” means—

(a) its qualifying expenditure on in-house direct research and development (see section 1077),

(b) its qualifying expenditure on contracted out research and development (see section 1078), and

(c) its qualifying expenditure on contributions to independent research and development (see section 1079).

1077 Qualifying expenditure on in-house direct R&D

(1) A company’s “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which conditions A, B and C are met.

(2) Condition A 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).

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

(4) Condition C is that, if the expenditure is incurred in carrying on activities contracted out to the company, the activities are contracted out by—

(a) a large company, or

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

(5) 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.

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

1078 Qualifying expenditure on contracted out R&D

(1) A company’s “qualifying expenditure on contracted out research and development” means expenditure incurred by it in relation to which each of conditions A to D is 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 concerned (“the contracted out R&D”).

(3) Condition B is that the body, individual or firm concerned undertakes the contracted out R&D itself.

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

(5) Condition D is that, if the contracted out R&D is itself contracted out to the company, it is contracted out by—

(a) a large company, or

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

(6) 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.

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

1079 Qualifying expenditure on contributions to independent R&D

(1) A company’s “qualifying expenditure on contributions to independent research and development” means expenditure incurred by it in relation to which each of conditions A to E is 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,

for the purpose of funding research and development carried on by the body, individual or firm concerned (“the funded R&D”).

(3) Condition B is that the funded R&D is relevant research and development in relation to the company.

(4) Condition C is that the funded R&D is not contracted out to the qualifying body, individual or firm concerned by another person.

(5) Condition D is that, if the payment is made to an individual, the company is not connected with the individual when the payment is made.

(6) Condition E is that, if the payment is made to a firm (other than a qualifying body), the company is not connected with any member of the firm when the payment is made.

Insurance companies

1080 Entitlement to relief: I minus E basis

(1) This section applies if, for an accounting period, an insurance company is charged to tax under the I minus E basis in respect of its life assurance business.

(2) Any additional deduction to which the company would otherwise be entitled under section 1074 is to be treated as expenses payable falling to be brought into account at Step 3 of section 76(7) of ICTA (insurance companies: amount of expenses deduction).

(3) Section 1074 does not apply to allow any deduction in any calculation of the profits of the company’s life assurance business made in accordance with the provisions applicable for the purposes of section 35 (charge on trade profits).

But this is subject to subsection (4).

(4) Section 1074 has effect in relation to any gross roll-up business of the company as if the references to the trade carried on by the company were references to the gross roll-up business (and subsection (2) does not apply in relation to that business).