Corporation Tax Act 2009

Qualifying expenditure

1098 Meaning of “qualifying Chapter 7 expenditure”

For the purposes of this Part a company’s “qualifying Chapter 7 expenditure” means—

(a) its qualifying expenditure on in-house direct research and development (see section 1101), and

(b) its qualifying expenditure on contracted out research and development (see section 1102).

1099 SMEs: qualifying expenditure “for” an accounting period

(1) If a company is a small or medium-sized enterprise in an accounting period, its qualifying Chapter 7 expenditure is “for” the period if—

(a) 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, or

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

(2) For the purposes of subsection (1)(a) section 61 (pre-trading expenses treated as incurred when trading begins) is to be ignored.

1100 Large companies: qualifying expenditure “for” an accounting period

(1) If a company is a large company throughout an accounting period, its qualifying Chapter 7 expenditure is “for” the 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.

(2) Expenditure allowable as a deduction for the purposes of subsection (1) includes expenditure so allowable because of section 61 (pre-trading expenses).

1101 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 each of conditions A to E is met.

(2) Condition A is that the expenditure is attributable to qualifying R&D activity (see section 1086) undertaken by the company itself.

(3) Condition B is that the qualifying R&D activity to which the expenditure is attributable is relevant research and development in relation to the company.

(4) Condition C 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).

(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 and 1132 for provision about when expenditure within subsection (4)(a), (b) or (c) is attributable to relevant research and development.

1102 Qualifying expenditure on contracted out R&D

(1) A company’s “qualifying expenditure on contracted out research and development” means expenditure in relation to which each of conditions A to D is met.

(2) Condition A is that the expenditure is incurred in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136) to a sub-contractor.

(3) Condition B is that the expenditure is attributable to qualifying R&D activity (see section 1086) undertaken by the sub-contractor itself.

(4) Condition C is that the R&D activity to which the expenditure is attributable is relevant research and development in relation to the company.

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

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