Finance Act 2024

9 (1) Chapter 9 of Part 13 (supplementary provision) is amended as follows.

(2) In section 1126B (regulations about consumable items and research and development), omit subsection (3).

(3) In section 1128 (meaning of “externally provided worker”), in subsection (9), for “1131” substitute “1132A”.

(4) In section 1129 (qualifying expenditure on externally provided workers: connected persons)—

(a) in subsection (3) omit the “and” at the end of paragraph (b);

(b) in that subsection, at the end of paragraph (c) insert “, and

“(d) is attributable to qualifying earnings of externally provided workers.”

(5) In section 1131 (qualifying expenditure on externally provided workers: other cases)—

(a) in subsection (2), for “65% of the staff provision payment” substitute “65% of so much of the staff provision payment as is attributable to qualifying earnings of externally provided workers”;

(b) after subsection (3) insert—

“(4) Any apportionment of expenditure of the company necessary for the purposes of this section is to be made on a just and reasonable basis.”

(6) After section 1132 insert—

“1132A “Qualifying earnings”

(1) This section determines what are “qualifying earnings” in relation to an externally provided worker for the purposes of this Part.

(2) The worker’s earnings are qualifying earnings if either—

(a) the staff controller, or

(b) the company in relation to which the worker is an externally provided worker,

is, in respect of any part of those earnings, required to account to an officer of Revenue and Customs both for income tax under PAYE regulations and for Class 1 national insurance contributions.

(3) If subsection (2) does not apply, the worker’s earnings are qualifying earnings if and to the extent that they are attributable to relevant research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) In this section, “the worker’s earnings” means the worker’s earnings under the contract mentioned in section 1128(7).”

(7) For section 1133 and the italic heading preceding it substitute—

“Contracting out

1133 Contracted out research and development

(1) This section applies for the purposes of this Part.

(2) A person “contracts out” research and development if—

(a) the person enters into a contract under which activities are to be undertaken for it (whether by another party to the contract or by a sub-contractor),

(b) the activities undertaken in order to meet the obligations owed to the person under the contract include research and development, and

(c) it is reasonable to assume, having regard to the terms of the contract and any surrounding circumstances, that the person intended or contemplated when entering into the contract that research and development of that sort would be undertaken in order to meet those obligations.

(3) The research and development that is “contracted out” is the research and development referred to in subsection (2)(b), to the extent that subsection (2)(c) is satisfied in relation to it.

(4) Research and development contracted out by a person is contracted out “to”—

(a) the party to the contract who undertakes the obligations referred to in subsection (2)(b), and

(b) any sub-contractor who undertakes contractual responsibility for the activities needed to meet those obligations.

(5) References to a sub-contractor include any sub-contractor at one or more removes from the contract referred to in subsection (2).

(6) A “contractor payment” is a payment made in respect of contracted out research and development to a person to whom it is contracted out.

(7) A payment that relates only partly to contracted out research and development is to be apportioned on a just and reasonable basis for the purposes of subsection (6).

(8) Sections 1134 to 1136 determine the “qualifying element” of a contractor payment.”

(8) In section 1134 (qualifying element of sub-contractor payment made between connected persons)—

(a) in the heading, for “sub-contractor” substitute “contractor”;

(b) in subsection (1), for paragraphs (a) and (b) (not including the following “and”) substitute—

“(a) a company (“A”) makes a contractor payment to another person (“B”),

(b) A and B are connected,”;

(c) in subsection (1)(c)—

(i) omit “sub-contractor”;

(ii) for “the sub-contractor’s”, in both places it appears, substitute “B’s”;

(d) in subsection (2)—

(i) in the words before paragraph (a), omit “sub-contractor”;

(ii) in paragraph (b), for “the sub-contractor’s” substitute “B’s”;

(e) in subsection (3)—

(i) in the words before paragraph (a), for “the sub-contractor” substitute “B”;

(ii) in paragraph (a), for “the sub-contractor”, in the first place it appears, substitute “B”;

(iii) also in paragraph (a), omit “sub-contractor” in the second place it appears;

(iv) for paragraph (d) substitute—

“(e) is incurred in respect of—

(i) research and development that is undertaken in the United Kingdom, or

(ii) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.”;

(f) in subsection (4)—

(i) in paragraph (a), for “the sub-contractor” substitute “B”;

(ii) in paragraph (b), for “the company’s”, in both places it appears, substitute “A’s”;

(iii) also in paragraph (b), for “sub-contractor” substitute “contractor”;

(g) for subsection (5) substitute—

“(5) In section 1123 (staffing costs) and sections 1127 to 1131 (qualifying expenditure on externally provided workers) as they apply for the purposes of subsection (3)(c), references to a company are to be read as references to B.”;

(h) in subsection (6), for “the company or the sub-contractor” substitute “A or B”.

(9) In section 1135 (election to be treated as connected for purpose of determining qualifying element)—

(a) in subsection (1), for “A company and a sub-contractor who are not connected” substitute “Where a company makes a contractor payment to a person with whom it is not connected, the company and that person”;

(b) in subsection (2)—

(i) for “sub-contractor” substitute “contractor”;

(ii) omit “other arrangement”;

(c) in subsection (4), omit “or other arrangement”.

(10) For section 1136 substitute—

“1136 Qualifying element of contractor payment: other cases

(1) This section applies to a contractor payment to which section 1134 does not apply.

(2) The qualifying element of the payment is 65% of the relevant portion of the payment.

(3) The relevant portion is the portion that is incurred in respect of—

(a) research and development that is undertaken in the United Kingdom, or

(b) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) An apportionment of expenditure necessary for the purposes of this section is to be made on a just and reasonable basis.”

(11) Omit section 1138 (meaning of “subsidised expenditure”).

(12) In place of the omitted section 1138 insert—

“1138A Externally provided workers and contractors: R&D undertaken abroad

(1) This section applies to research and development undertaken outside the United Kingdom if—

(a) the research and development is undertaken in the circumstances described in subsection (2), or

(b) regulations made by the Treasury provide for this section to apply.

(2) The circumstances are that there are conditions necessary for the purposes of the research and development—

(a) that are not present in the United Kingdom,

(b) that are present in the location in which the research and development is undertaken, and

(c) that it would be wholly unreasonable for the company to replicate in the United Kingdom.

(3) In subsection (2) “conditions”—

(a) includes—

(i) geographical, environmental or social conditions;

(ii) legal or regulatory requirements as a result of which the research and development may not be undertaken in the United Kingdom, but

(b) does not include conditions so far as relating to—

(i) the cost of the research and development;

(ii) the availability of workers to carry out the research and development.

(4) The Treasury may by regulations make provision specifying things that are not conditions for the purposes of subsection (2).

1138B Exempt foreign permanent establishments

For the purposes of this Part in its application to an accounting period, a company’s expenditure is “attributable to an exempt foreign permanent establishment” if—

(a) an election by the company under section 18A applies to the period, and

(b) the expenditure is brought into account in calculating a relevant profits amount or a relevant losses amount for the purposes of that section as it applies in relation to the period.”

(13) After section 1140 insert—

“1140A Groups

For the purposes of this Part, a company is in the same group as another company if those companies are in the same group for the purposes of Part 5 of CTA 2010.”

(14) In section 1142 (meaning of “qualifying body”)—

(a) for the heading substitute “Ineligible companies”;

(b) in subsection (1), in the words before paragraph (a), for ““qualifying body” means” substitute “a company is an “ineligible company” if it is”;

(c) after subsection (4) insert—

“(5) Two companies that are in the same group may make a joint election the effect of which is that—

(a) in respect of any research and development contracted out by one of those companies to the other, the company contracting it out is to be treated for the purposes of this Part as an ineligible company, and

(b) in determining whether activity is research and development for the purposes of this Part, anything done by one of those companies further to a contract with the other is to be treated as if done by the other company, in any case where that results in activity that would not otherwise be research and development being regarded as such.

(6) Such an election—

(a) must be made by notice in writing to an officer of Revenue and Customs, and

(b) has effect until—

(i) it is revoked by either company by further such notice, or

(ii) the companies are no longer in the same group.”

(15) In section 1142B (meaning of “R&D claim”), in paragraph (a), for “104A” substitute “1042C”.

(16) After section 1142B insert—

“1142C Right to payment of credit inalienable

(1) The right of a company to be paid an amount of R&D expenditure credit or R&D tax credit may not be assigned.

(2) Accordingly, a purported assignment of such a right, or an agreement to assign such a right, is void.

(3) References to assignment in this section are to be read in Scotland as references to assignation.”

(17) After section 1142C (inserted by sub-paragraph (16)) insert—

“1142D General rule against payments of credit to nominees

(1) Where an amount of R&D expenditure credit or R&D tax credit is owed to a company, an officer of Revenue and Customs may not pay the amount to a person other than the company (even on the instruction or at the request of the company).

(2) Subsection (1) does not apply if—

(a) the company requests that payment be made to a person connected with the company, or

(b) the officer is satisfied that exceptional circumstances make payment to the company impracticable or inconvenient.”

(18) After section 1142D (inserted by sub-paragraph (17)) insert—

“1142E Orders and regulations: ancillary provision

Any order or regulations under this Part may—

(a) contain incidental, supplemental, consequential and transitional provision and savings;

(b) make different provision for different purposes or areas.”