Corporation Tax Act 2009

Part 15 Research and development

Rates of relief

112 (1) In relation to expenditure incurred before 1 August 2008, Part 13 has effect with the following modifications.

(2) In Chapter 2 (relief for SMEs: cost of R&D incurred by SME)—

(a) in section 1044(8), for “75%” substitute “50%”,

(b) in section 1045(7), for “175%” substitute “150%”,

(c) in section 1055(2)(b), for “175%” substitute “150%”, and

(d) in section 1058(1)(a), for “14%” substitute “16%”.

(3) In Chapter 7 (relief for SMEs and large companies: vaccine research etc)—

(a) in section 1089(2), for “40%” substitute “50%”,

(b) in section 1090(2), for “40%” substitute “50%”,

(c) in section 1091—

(i) in subsection (3), for “40%” substitute “50%”, and

(ii) in subsection (4), for “140%” substitute “150%”,

(d) in section 1092(8)—

(i) in paragraph (a), for “40%” substitute “50%”, and

(ii) in paragraph (b), for “140%” substitute “150%”, and

(e) in section 1104(5), for “140%” substitute “150%”.

R&D threshold in section 1050: qualifying Chapter 3 and 4 expenditure

113 (1) The references in section 1050(3)(b) and (c) to qualifying Chapter 3 expenditure and qualifying Chapter 4 expenditure do not include any such expenditure incurred before 1 April 2002.

(2) For the purposes of sub-paragraph (1) section 61 (pre-trading expenses) is to be ignored.

Chapters 3 to 5 of Part 13: expenditure incurred before 1 April 2002

114 (1) Chapters 3 to 5 of Part 13 do not apply to expenditure incurred before 1 April 2002.

(2) For this purpose section 61 (pre-trading expenses) is to be ignored.

Chapter 7 of Part 13: expenditure incurred before 22 April 2003

115 (1) Chapter 7 of Part 13 (relief for SMEs and large companies: vaccine research etc) does not apply to expenditure incurred before 22 April 2003.

(2) For this purpose section 61 (pre-trading expenses) is to be ignored.

Cap on R&D aid under Chapter 2 or 7 of Part 13

116 For the purposes of any calculation in accordance with section 1114, no account is to be taken of any qualifying R&D relief (as defined in section 1113(4)) in respect of expenditure incurred before 1 August 2008.

Chapter 7 of Part 13: qualifying expenditure on contracted out R&D

117 (1) Section 1135(4) (time limit for notice of election for connected persons treatment) does not apply to a notice of an election under that section in relation to a sub-contractor payment made by a company if—

(a) the company has qualifying expenditure on contracted out research and development (as defined in section 1102),

(b) the sub-contractor is—

(i) a charity,

(ii) a university, or

(iii) an association of a description specified in section 508 of ICTA (scientific research organisations), and

(c) the notice is given before 1 August 2009.

(2) In sub-paragraph (1) “sub-contractor” and “sub-contractor payment” have the same meaning as in Part 13 (see section 1133).

Small or medium-sized enterprises

118 (1) In relation to expenditure incurred before 1 August 2008, Part 13 has effect with the omission of the larger SME provisions.

(2) The “larger SME provisions” are—

• sections 1089(4) and 1090 (modification of section 1089 for larger SMEs),

• section 1093 (modification of section 1092 for larger SMEs),

• section 1104(5) (modification of amount B in section 1104 for larger SMEs),

• qualification 1 in section 1120(2) (qualifications to section 1119), and

• section 1121 (meaning of “larger SME”).

(3) But for the purpose of determining, in relation to expenditure incurred on or after 1 August 2008, whether a company is a small or medium-sized enterprise within the meaning of Part 13, the larger SME provisions are to be treated as always having had effect.

Staffing costs

119 (1) In its application to expenditure incurred—

(a) before 1 April 2004, and

(b) in an accounting period ending on or after 6 April 2003,

section 1123 has effect with the following modification.

(2) For subsections (2) and (3) substitute—

“(2) This subsection applies to earnings paid by the company to directors or employees of the company.

For this purpose “earnings” means earnings or amounts treated as earnings which constitute employment income (see section 7(2)(a) or (b) of ITEPA 2003).”

120 In its application to expenditure incurred before 1 August 2008, section 1123 has effect with the omission of subsections (5) and (6).

121 (1) In relation to expenditure incurred before 27 September 2003, section 1124 applies, for the purposes of Chapters 2 and 7 of Part 13, with the modification in sub-paragraph (3).

(2) In relation to expenditure incurred before 9 April 2003, section 1124 applies, for the purposes of Chapters 3 to 5 of Part 13, with the modification in sub-paragraph (3).

(3) For subsections (3) and (4) substitute—

“(3) In the case of a director (“D”) or employee (“E”) partly engaged directly and actively in relevant research and development the following rules apply—

(a) if the time D or E spends so engaged is less than 20% of D’s or E’s total working time, none of the staffing costs relating to D or E is treated as attributable to relevant research and development,

(b) if the time D or E spends so engaged is more than 80% of D’s or E’s total working time, the whole of the staffing costs relating to D or E is treated as attributable to relevant research and development,

(c) in any other case, an appropriate proportion of the staffing costs relating to D or E is treated as attributable to relevant research and development.”

Expenditure on software or consumable items

122 (1) In relation to expenditure incurred before 1 April 2004, Part 13 applies with the following modifications.

(2) For “software or consumable items” in each place where it occurs, substitute “consumable stores”.

(3) For sections 1125 and 1126 substitute—

“1125 Consumable stores

(1) For the purposes of this Part expenditure on consumable stores means expenditure that would be treated as expenditure on consumable stores in accordance with normal accounting practice.

(2) For the purposes of this Part expenditure on consumable stores is attributable to relevant research and development if the stores are employed directly in such research and development.”

Qualifying expenditure on externally provided workers

123 (1) In relation to expenditure incurred before 27 September 2003, Chapters 2 and 4 of Part 13 (relief for SMEs: cost of R&D borne by SME, and subsidised expenditure on R&D) apply with the omission of—

(a) section 1052(2)(c),

(b) section 1071(3)(c),

(c) in section 1134(3)(c), the words “or is qualifying expenditure on externally provided workers”,

(d) section 1134(5)(b), and

(e) sections 1127 to 1132, as they apply for the purposes of those Chapters.

(2) In relation to expenditure incurred before 9 April 2003, Chapter 3 of Part 13 (relief for SMEs: R&D sub-contracted to SME) applies with the omission of—

(a) section 1066(3)(c), and

(b) sections 1127 to 1132, as they apply for the purposes of that Chapter.

(3) In relation to expenditure incurred before 9 April 2003, Chapter 5 of Part 13 (relief for large companies) applies with the omission of—

(a) section 1077(2)(c), and

(b) sections 1127 to 1132, as they apply for the purposes of that Chapter.

(4) In relation to expenditure incurred by a large company before 27 September 2003, Chapter 7 of Part 13 (relief for SMEs and large companies: vaccine research etc) applies in the case of such a company with the omission of—

(a) section 1101(4)(c), and

(b) sections 1127 to 1132, as they apply for the purposes of that Chapter.

(5) In sub-paragraph (4) “large company” has the same meaning as in Part 13.

Qualifying expenditure on relevant payments to subjects of clinical trials

124 (1) In relation to expenditure incurred before 1 August 2008, Chapter 2 of Part 13 (relief for SMEs: cost of R&D borne by SME) applies with the omission of—

(a) section 1052(2)(d),

(b) section 1071(3)(d),

(c) in section 1134(3)(c), the words “or relevant payments to the subjects of a clinical trial”, and

(d) section 1140, as it applies for the purposes of that Chapter.

(2) In relation to expenditure incurred before 1 August 2008, Chapter 3 of Part 13 (relief for SMEs: cost of R&D sub-contracted to SME) applies with the omission of—

(a) section 1066(3)(d), and

(b) section 1140, as it applies for the purposes of that Chapter.

(3) In relation to expenditure incurred before 1 April 2006, Chapter 4 of Part 13 (relief for SMEs: subsidised expenditure on R&D) applies with the omission of—

(a) section 1071(3)(d),

(b) in section 1134(3)(c), the words “or relevant payments to the subjects of a clinical trial”, and

(c) section 1140, as it applies for the purposes of that Chapter.

(4) In relation to expenditure incurred before 1 April 2006, Chapter 5 of Part 13 (relief for large companies) applies with the omission of—

(a) section 1077(2)(d), and

(b) section 1140, as it applies for the purposes of that Chapter.

(5) In relation to expenditure incurred before 1 August 2008, Chapter 7 of Part 13 (relief for SMEs and large companies: vaccine research etc) applies with the omission of—

(a) section 1101(4)(d), and

(b) section 1140, as it applies for the purposes of that Chapter.