Section 35, Schedule 15: R&D EXPENDITURE CREDITS
Summary
1.Section 35 introduces Schedule 15 which introduces an ‘Above the Line’ (ATL) credit for research and development expenditure incurred on or after 1 April 2013. The ATL credit is introduced alongside the existing additional relief for expenditure on research and development under Part 13 of CTA 2009 (known as the super-deduction) but will replace the super-deduction from 1 April 2016.
Details of the Schedule
2.Part 1 and paragraph 1 introduce a new Chapter 6A of Part 3 CTA 2009 (trading income).
3.New section 104A signposts various definitions and provisions relating to claims and confirms that the credit is a taxable profit of the trade.
4.New section 104B provides that a company cannot make a claim under Chapter 6A and Part 13 of CTA 2009 in relation to the same expenditure.
5.New section 104C sets out the meaning of “qualifying expenditure on sub-contracted R&D” for SME companies.
6.New section 104D applies to SME companies and sets out what is qualifying expenditure on R&D contracted out to a company.
7.New section 104E applies to SME companies and defines the conditions applying to expenditure on R&D contracted out to a company.
8.New section 104F defines the meaning of “subsidised qualifying expenditure” for SME companies.
9.New section 104G defines the meaning of “subsidised qualifying expenditure on in-house direct research and development ” for SME companies.
10.New section 104H defines the meaning of “subsidised qualifying expenditure on contracted out research and development” for SME companies.
11.New section 104I defines the meaning of “capped R&D expenditure” for SME companies.
12.New section 104J defines the meaning of “qualifying expenditure on in-house direct research and development” for large companies.
13.New section 104K defines the meaning of “qualifying expenditure on contracted out research and development” for large companies.
14.New section 104L defines the meaning of “qualifying expenditure on contributions to independent research and development” for large companies.
15.New section 104M sets out the amount of the credit as a percentage of qualifying expenditure and that the percentage may be replaced by Treasury Order. It also provides for a different percentage for companies carrying on a “ring fence trade”.
16.New section 104N outlines how the payment of credit is calculated and the order in which the various set-offs and restrictions should be applied. It also sets out how the payment of the credit will be taxed.
17.New section 104O defines the meaning of total expenditure on workers.
18.New section 104P defines the meaning of the total amount of a company’s PAYE and NIC liabilities.
19.New section 104Q outlines how a credit can be surrendered to other group companies.
20.New section 104R outlines how tax deducted on the payment of a credit can be utilised including the order of set off.
21.New section 104S sets out restrictions to the payment of a credit if the company is not a “going concern”, has outstanding PAYE or NIC liabilities or where the company’s tax return is being enquired into. It also sets out that a company will become entitled to the credit where it becomes a going concern again within the time limits for amending the tax return.
22.New section 104T defines the meaning of “going concern”.
23.New section 104U applies so as to treat SME insurance companies as large companies for the purposes of Chapter 6A.
24.New section 104V provides for certain non-proprietary insurance companies that compute profits on an I-E basis and which would otherwise be unable to fall within the provisions of new section 104A, to claim an R&D expenditure credit and for that credit to be treated as a taxable receipt.
25.New section 104W relates to group payments made for research and development activities carried out.
26.New section 104X is an anti-avoidance provision which prevents artificially inflated claims for credit.
27.New section 104 Y provides for various definitions.
28.Part 1 paragraphs 2 and 3 provide for consequential amendments to Part 13 and Schedule 4 of CTA 2009.
29.Part 2 provides for further consequential amendments.
30.Part 3 of the Schedule provides for the abolition of R&D relief given by way of a super-deduction from April 2016.
31.Part 4 provides that amendments made by Parts 1 and 2 have effect in relation to expenditure incurred on or after 1 April 2013 and amendments made by Part 3 have effect in relation to expenditure incurred on or after 1 April 2016.
32.Paragraph 29 provides that where a company elects to claim an R&D expenditure credit for accounting periods beginning before 1 April 2016 (or for expenditure incurred on or after 1 April 2013 where the accounting period straddles that date), then that company will no longer able to claim relief by way of a super-deduction under the large company scheme.
Background
33.Additional relief for expenditure by a large company on research and development is currently given as a super-deduction against corporation tax profits reducing the amount of tax payable.
34.To encourage more research and development by large companies it is proposed to replace the current deduction system with a payable credit (the ATL credit) to all large companies including those who have no liability to corporation tax. This will make the benefits more visible and certain.
35.The ATL credit applies for qualifying expenditure incurred on or after 1 April 2013 and will be introduced along side the existing super-deduction and will replace it in April 2016.
36.The underlying rules for identifying qualifying activity and calculating qualifying expenditure remain unchanged and the new credit will be calculated as a percentage by reference to the amount of qualifying expenditure on R&D.
37.The ATL credit will be a taxable receipt and will be paid net of tax to companies with no corporation tax liability.
38.The ATL credit will be paid at a higher percentage rate to companies in the ring fence to reflect the higher rate of tax paid by those companies and to reflect the current levels received under the super-deduction.
39.In calculating the payable element, the credit will be used firstly to reduce the corporation tax liability of the claimant company for the same accounting period.
40.Any payable element will then be limited by the PAYE/NIC liabilities of the company’s R&D staff and those of Externally Provided Workers from group companies. Any amount above the cap may be carried forward to be treated as a credit for the following year.
41.If a claim is made, the payable element (after the PAYE/NIC cap has been applied) will be available to discharge any corporation tax liabilities of other accounting periods of the claimant company or the corporation tax liability of other group companies.
42.The balance after the cap and discharging of liability will be payable but under deduction of an amount equal to corporation tax at the full company rate applying for the accounting period (including the main rate and supplementary charge for ring fence trades) but subject to discharging any other liability of the company to the Commissioners.
43.Any notional tax retained will be carried forward and be available to discharge the claimant company’s liability in preference to any ATL credit for the following year.
