Finance Act 1944

PART IV Income Tax (Expenditure on Scientific Research).

27 Allowances for expenditure on scientific research not of a capital nature and on payments to research associations, universities, &c.

Notwithstanding anything in Rule 3 of the Rules applicable to Cases I and II of Schedule D, where, after the appointed day, a person carrying on a trade—

(a) incurs expenditure not of a capital nature on scientific research related to that trade and directly undertaken by him or on his behalf ; or

(b) pays any sum to any scientific research association for the time being approved for the purposes of this section by the appropriate Research Council or Committee, being an association which has as its object the undertaking of scientific research related to the class of trade to which the trade he is carrying on belongs ; or

(c) pays any sum to be used for such scientific research as is mentioned in the last preceding paragraph to any such university, college, research institute or other similar institution as is for the time being approved for the purposes of this section by the appropriate Research Council or Committee,

the expenditure incurred or sum paid, as the case may be, may be deducted as an expense in computing the profits or gains of the trade for the purposes of income tax.

28 Allowances for capital expenditure on scientific research.

(1) Subject to the provisions of the next succeeding section, where, after the appointed day, a person—

(a) while carrying on a trade, incurs expenditure of a capital nature on scientific research related to that trade and directly undertaken by him or on his behalf; or

(b) incurs expenditure of a capital nature on scientific research directly undertaken by him or on his behalf and thereafter sets up and commences a trade connected with that research,

a deduction equal to one fifth of the expenditure shall be allowed in charging the profits or gains of the trade for each of the five years of assessment mentioned in the succeeding provisions of this section.

(2) If the expenditure is incurred before the end of the year of assessment in which the trade was set up and commenced, the five years shall be that and the next four years of assessment.

(3) If the expenditure is incurred after the end of the year of assessment in which the trade was set up and commenced but not later than twelve months from the setting up and commencement of the trade, the five years shall be the year of assessment next following that in which the trade was set up and commenced and the next four years of assessment.

(4) If the expenditure is incurred after twelve months from the setting up and commencement of the trade, and during the basis year for any year of assessment, the five years shall be that and the next four years of assessment:

Provided that—

(a) where two basis years overlap, any expenditure incurred in the period common to both shall be deemed for the purposes of this subsection to have been incurred in the first basis year only ; and

(b) where there is an interval between the end of the basis year for one year of assessment and the beginning of the basis year for the next year of assessment, any expenditure incurred during the interval shall be deemed for the purposes of this subsection to have been incurred in the second basis year; and

(c) any expenditure which is incurred before the end of, but after the end of the basis year for, the last complete year of assessment before the permanent discontinuance of the trade shall be deemed for the purposes of this subsection to have been incurred in the said basis year.

In this subsection, the expression " basis year " means, in relation to a year of assessment, the period the profits or gains of which are, under section thirty-four of the Finance Act, 1926, to be taken to be the profits or gains of the year preceding that year of assessment.

29 Provisions as to assets representing capital expenditure.

(1) Where an asset representing scientific research expenditure of a capital nature incurred by the person carrying on a trade ceases to be used by that person for scientific research related to that trade—

(a) no allowance shall be made under the last preceding section for any year of assessment after that in which the cessation takes place ; and

(b) if the amounts, if any, allowed under the last preceding section in respect of the expenditure, added to the value of the asset immediately before the cessation, are less than the said expenditure, there shall be allowed in charging the profits and gains of the trade for the year of assessment in which the cessation takes place an additional deduction equal to the difference ; and

(c) if in any subsequent year of assessment a claim is, or would but for this subsection be, admissible by the person carrying on the trade to a deduction in respect of the asset for wear and tear, obsolescence, depreciation or exceptional depreciation and the amount of that deduction is dependent upon the actual cost to that person of the asset, the cost of the asset, or the net cost of the asset, then the actual cost, cost or net cost, as the case may be, shall, for the purpose of ascertaining whether any and if so what deduction is admissible, be treated as reduced by the amount of any deductions allowed in respect of the asset under this or the last preceding section.

(2) Where an asset representing scientific research expenditure of a capital nature in respect of which an allowance or allowances has or have been made under this or the last preceding section in charging the profits or gains of a trade ceases to be used by the person carrying on the trade for scientific research related to that trade and is then or thereafter sold by him without having been used in the meantime for other purposes, then—

(a) if an additional allowance, or a greater additional allowance, would have been made under the last preceding subsection for the year of assessment in which the cessation occurred if the proceeds of sale of the asset had been taken to be the value of the asset, an amount equal to the additional allowance which would have been made or, as the case may be, to the difference between the additional allowance which would have been made and the additional allowance which was made for that year shall be allowed in charging the profits or gains of the trade for the year of assessment in which the sale occurs or, if the sale occurs on or after the date on which the trade is permanently discontinued, for the last year of assessment in which the trade is carried on before the discontinuance ;

(b) in any other case, if the proceeds of sale plus the total amount of the allowances made under this and the last preceding section in respect of the expenditure exceed the amount of the expenditure, the excess or the amount of the allowances so made, whichever is the less, shall be treated as a trading receipt of the trade accruing at the time of the sale, or, if the sale occurs on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.

(3) Where an asset is destroyed by fire or any similar cause, it shall for the purposes of the last preceding subsection be treated as if it had been sold immediately before the destruction thereof and any insurance moneys or other compensation of any description received by the person carrying on the trade in respect of the destruction and any moneys received by him for the remains of the asset shall be treated as if they were proceeds of that sale.

(4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provision of the Income Tax Acts other than this Part of this Act in respect of wear and tear, obsolescence, depreciation or exceptional depreciation of those assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific research related to the trade.

30 Carrying forward of allowances.

Paragraph (3) of Rule 6 of the Rules applicable to Cases I and II of Schedule D (which relates to the carrying forward of deductions allowable in respect of wear and tear) and section nineteen of the Finance Act, 1932 (which provides for the carrying forward of losses for which relief cannot be given owing to the grant of relief given in respect of wear and tear) shall apply in relation to deductions allowable under either of the two last preceding sections as they apply in relation to deductions allowable in respect of wear and tear.

31 Supplementary provisions.

(1) In this Part of this Act, the following expressions have the meanings hereby respectively assigned to them, that is to say—

• " the appointed day " means such day as Parliament may hereafter determine ;

• " scientific research " means any activities in the fields of natural or applied science for the extension of knowledge ;

• " scientific research expenditure " means expenditure incurred on scientific research ;

  references to expenditure incurred on scientific research do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research, but, save as aforesaid, include all expenditure incurred for the prosecution of, or the provision of facilities for the prosecution of, scientific research ;

  references to scientific research related to a trade or a class of trades include—

  (a)

  any scientific research which may lead to or facilitate an extension of that trade or, as the case may be, of trades of that class ;

  (b)

  any scientific research of a medical nature which has a special relation to the welfare of workers employed in that trade or, as the case may be, trades of that class ;

• " the appropriate Research Council or Committee " means the Committee of the Privy Council for Scientific and Industrial Research, the Medical Research Council established under the Committee of the Privy Council for Medical Research, or the Agricultural Research Council established under the Committee of the Privy Council for Agricultural Research, according as may be appropriate in relation to the activities in question;

• " asset " includes a part of an asset ;

  references to the setting up and commencement of a trade and to the permanent discontinuance of a trade include references to the occurring of any event which, under any of the provisions of the Income Tax Acts, is to be treated as equivalent to the setting up and commencement of a trade or, as the case may be, to the permanent discontinuance thereof.

(2) For the purposes of this Part of this Act, expenditure shall not be regarded as incurred by a person in so far as it is, or is to be, met directly or indirectly by the Crown or by any Government or public or local authority, whether in the United Kingdom or elsewhere, or by any person other than the first-mentioned person.

(3) The same expenditure shall not be taken into account for any of the purposes of this Part of this Act in relation to more than one trade.

(4) If any question arises under this Part of this Act as to whether, and if so to what extent, any activities constitute or constituted, or any asset is or was being used for, scientific research, the Commissioners of Inland Revenue shall refer the question to the appropriate Research Council or Committee for decision, and the decision of the Council or Committee shall be final.