Sub-contractor paymentsU.K.
1133“Sub-contractor” and “sub-contractor payment”U.K.
(1)In this Part a “sub-contractor payment” means a payment made by a company to another person (“the sub-contractor”) in respect of research and development contracted out by the company to that person.
(2)Sections 1134 to 1136 apply if a company makes a sub-contractor payment.
(3)They apply for the purpose of determining the qualifying element of the payment for the purposes of—
Textual Amendments
F1Words in s. 1133(3) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 22
F2Words in s. 1133(3) omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(7)
1134Qualifying element of sub-contractor payment: connected personsU.K.
(1)This section applies if—
(a)a company makes a sub-contractor payment,
(b)the company and the sub-contractor are connected, and
(c)in accordance with generally accepted accounting practice, the whole of the sub-contractor payment and all of the sub-contractor's relevant expenditure have been brought into account in determining the sub-contractor's profit or loss for a relevant period.
(2)The qualifying element of the sub-contractor payment is—
(a)the entire payment, or
(b)if less, an amount equal to the sub-contractor's relevant expenditure.
(3)“Relevant expenditure” of the sub-contractor means expenditure that—
(a)is incurred by the sub-contractor in carrying on, on behalf of the company, the activities to which the sub-contractor payment relates,
(b)is not of a capital nature,
(c)is incurred on staffing costs, software [F3, data licences, cloud computing services] or consumable items or relevant payments to the subjects of a clinical trial or is qualifying expenditure on externally provided workers, and
(d)is not subsidised.
(4)“Relevant period” means a period—
(a)for which accounts are drawn up for the sub-contractor, and
(b)that ends not more than 12 months after the end of the company's period of account in which the sub-contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.
(5)In the following sections, which apply for the purpose of determining whether a sub-contractor's expenditure meets the requirements of subsection (3)(c) and (d)—
(a)section 1123 (staffing costs),
(b)sections 1127 to 1131 (qualifying expenditure on externally provided workers), and
(c)section 1138 (subsidised expenditure),
references to a company are to be read as references to the sub-contractor.
(6)Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this section is to be made on a just and reasonable basis.
Textual Amendments
F3Words in s. 1134(3)(c) 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(b), 20
1135Election for connected persons treatmentU.K.
(1)A company and a sub-contractor who are not connected may jointly elect that section 1134 is to apply to them as if they were connected.
(2)Any such election must be made in relation to all sub-contractor payments paid under the same contract or other arrangement.
(3)The election must be made by notice in writing to an officer of Revenue and Customs.
(4)The notice must be given before the end of the period of two years beginning immediately after the end of the company's accounting period in which the contract or other arrangement is entered into.
(5)An election under this section is irrevocable.
1136Qualifying element of sub-contractor payment: other casesU.K.
(1)This section applies if—
(a)a company makes a sub-contractor payment,
(b)the company and the sub-contractor are not connected persons, and
(c)no election is made under section 1135.
(2)The qualifying element of the sub-contractor payment is 65% of the sub-contractor payment.