Part 13Additional relief for expenditure on research and development
Chapter 1Introduction
Introductory
1039Overview of Part
1
This Part provides for corporation tax relief for expenditure on research and development.
2
Relief under this Part is in addition to any deduction given under section 87 for the expenditure.
3
Relief under F14Chapter 2 is available to a company which is a small or medium-sized enterprise, in particular—
a
Chapter 2 provides for relief where the cost of in-house direct research and development or contracted out research and development is incurred by the company,
F86b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F86c
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F724
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Chapter 6 contains further provision in relation to relief under F91Chapter 2 , in particular—
a
section 1081 provides for certain insurance companies to be treated as large companies,
F69b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F69c
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
d
section 1084 contains an anti-avoidance provision dealing with artificially inflated claims for relief or R&D tax credits (as to which, see subsection (7) below).
F716
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
F67Chapter 2 also provides for the payment of tax credits (“R&D tax credits”) where a company which is a small or medium-sized enterprise—
a
obtains relief under Chapter 2 F92..., and
b
makes, or is treated as making, a trading loss.
8
Chapter 8 contains provision limiting the amount of relief available under Chapter 2 F125... in relation to expenditure on a particular research and development project.
9
Chapter 9 contains supplementary provision, including definitions.
10
For information about the procedure for making claims under this Part see Schedule 18 to FA 1998, in particular Part 9A of that Schedule (claims for R&D tax reliefs).
1040Relief may be available under more than one Chapter of Part
Expenditure may be eligible for relief under more than one Chapter of this Part.
1040ZAF41Restriction on claiming other tax reliefs
1
For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15 (film tax relief), see section 1195(3A).
2
For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15A (television tax relief), see section 1216C(4).
3
For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15B (video games tax relief), see section 1217C(4).
F884
For provision prohibiting relief being given under this Part and under section 1217H or 1217K (theatrical productions: additional deduction or theatre tax credit), see section 1217JA(2).
F1005
For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15E (museums and galleries exhibition tax relief), see section 1218ZCG(2).
1040AF83R&D expenditure credits
1
For provision enabling a company carrying on a trade to make a claim for an amount in respect of expenditure on research and development (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period, see Chapter 6A of Part 3.
2
For provision prohibiting a company from making a claim for an R&D expenditure credit and for relief under this Part in respect of the same expenditure, see section 104B.
Interpretation
1041“Research and development”
In this Part “research and development” has the meaning given by F57section 1138 of CTA 2010.
1042“Relevant research and development”
1
In this Part “relevant research and development”, in relation to a company, means research and development—
a
related to a trade carried on by the company, or
b
from which it is intended that a trade to be carried on by the company will be derived.
2
Research and development related to a trade carried on by a company includes—
a
research and development which may lead to or facilitate an extension of the trade, and
b
research and development of a medical nature which has a special relation to the welfare of workers employed in the trade.
F773
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 2Relief for SMEs: cost of R&D incurred by SME
Introductory
1043Overview of Chapter
1
This Chapter provides for relief for companies which are small or medium-sized enterprises for expenditure on—
a
in-house direct research and development, or
b
contracted out research and development,
where the cost of the research and development is incurred by the company.
2
The reliefs available are—
a
an additional deduction under section 1044, or
b
a deemed trading loss under section 1045.
3
Sections 1046 to 1053 contain provision relevant to the reliefs available under this Chapter, namely—
a
provision preventing a company from making a claim or election for relief if it is not a going concern (see section 1046),
b
information about elections under section 1045 for a deemed trading loss (see section 1047),
c
information about the treatment of a deemed trading loss (see section 1048),
d
a restriction on consortium relief where relief is obtained (see section 1049),
F40e
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .and
f
provision about when a company's expenditure is “qualifying Chapter 2 expenditure” for those purposes (see sections 1051 to 1053).
4
Sections 1054 to 1062 deal with R&D tax credits which can be claimed if a company—
a
obtains relief under this Chapter, and
b
makes, or is treated as making, a trading loss.
Reliefs
1044Additional deduction in calculating profits of trade
1
A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to D.
2
Condition A is that the company is a small or medium-sized enterprise in the period.
F313
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Condition C is that the company carries on a trade in the period.
5
Condition D is that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.
6
For the company to obtain the relief it must make a claim.
See section 1046 (which prevents a company from making a claim if it is not a going concern).
7
The relief is an additional deduction in calculating the profits of the trade for the period.
8
The amount of the additional deduction is F12186% of the qualifying Chapter 2 expenditure.
9
This section is subject to —
F163a
section 1045A (requirement to make a claim notification);
F163b
section 1113 (cap on R&D aid in relation to a particular research and development project).
10
For the meaning of “qualifying Chapter 2 expenditure” see section 1051.
1045Alternative treatment for pre-trading expenditure: deemed trading loss
1
A company is entitled to corporation tax relief for an accounting period if it meets conditions AF63... and C.
2
Condition A is that the company is a small or medium-sized enterprise in the period.
F273
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4
Condition C is that the company has incurred qualifying Chapter 2 expenditure in the period which—
a
is not allowable as a deduction in calculating for corporation tax purposes the profits of a trade carried on by it at the time the expenditure was incurred, but
b
would have been so allowable had it, at that time, been carrying on a trade consisting of the activities in respect of which the expenditure was incurred.
5
For the company to obtain the relief it must make an election.
See section 1046 (which prevents a company from making an election if it is not a going concern).
6
The relief is that the company is treated as if it had made a trading loss in the period.
7
The trading loss is equal to F102186% of the qualifying Chapter 2 expenditure.
8
If a company makes an election under this section in respect of qualifying Chapter 2 expenditure, section 61 (pre-trading expenses) does not apply to the expenditure.
9
This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).
10
For the meaning of “qualifying Chapter 2 expenditure” see section 1051.
11
See also section 1137, which makes provision about the accounting periods of a company which is not within the charge to corporation tax.
Reliefs: further provision
1045AF145Requirement to make a claim notification
1
A company may not make a claim under section 1044(6) (an “additional deduction claim”) after the end of the claim notification period unless—
a
the company has made an R&D claim during the period of three years ending with the last day of the claim notification period,
b
the company makes a claim notification in respect of the additional deduction claim within the claim notification period, or
c
the accounting period in respect of which the additional deduction claim is made falls within the same period of account as another accounting period in respect of which the company has made an R&D claim or a claim notification.
2
For the purposes of subsection (1)(a) ignore any R&D claim for an accounting period beginning before 1 April 2023 that is included in the company’s company tax return only by virtue of an amendment made on or after that date (see paragraph 83B(2) of Schedule 18 to FA 1998).
1046Relief only available where company is going concern
1
A company may only make—
a
a claim under section 1044, or
b
an election under section 1045,
at a time when it is a going concern.
2
For the purposes of this section a company is a going concern if—
a
its latest published accounts were prepared on a going concern basis, and
b
nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F42....
F98This is subject to subsection (2A).
F1012A
A company is not a going concern at any time if it is in administration or liquidation at that time.
2B
For the purposes of this section a company is in administration if—
a
it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
b
a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.
2C
For the purposes of this section a company is in liquidation if—
a
it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or
b
a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.
F1522D
For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.
2E
For the purposes of this section—
a
a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (2D);
b
A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).
3
Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.
1047Elections under section 1045
1
An election under section 1045 must specify the accounting period in respect of which it is made.
2
The election must be made by notice in writing to an officer of Revenue and Customs.
3
The notice must be given before the end of the period of two years beginning immediately after the end of the accounting period to which the election relates.
1048Treatment of deemed trading loss under section 1045
1
This section applies if under section 1045 a company is treated as making a trading loss in an accounting period F5(“the deemed loss-making period”).
2
3
Subsection (4) applies if—
F82za
the deemed loss-making period begins before 1 April 2017,
a
the company begins, in F54the deemed loss-making period or a later period, to carry on a trade, and
b
the trade is derived from the research and development in relation to which the relief mentioned in subsection (1) was obtained.
4
In that case, so far as—
a
the company has not obtained relief in respect of the trading loss under any other provision, and
b
the loss has not been surrendered under F2Part 5 of CTA 2010 (group relief),
the trading loss is to be treated as if it were a loss of that trade brought forward under F20section 45 of CTA 2010 (relief of trading losses against future trading profits).
F1084A
Subsection (4B) applies if—
a
the deemed loss-making period begins on or after 1 April 2017,
b
the company—
i
begins to carry on a trade in the deemed loss-making period which it continues to carry on in the following accounting period, or
ii
begins to carry on a trade in an accounting period after the deemed-loss making period, and
c
the trade is derived from the research and development in relation to which the relief mentioned in subsection (1) was obtained.
4B
In that case, so far as—
a
the company has not obtained relief in respect of the trading loss under any other provision, and
b
the loss has not been surrendered under Part 5 of CTA 2010 (group relief) (surrender of relief to group or consortium members),
the trading loss is to be treated as if it were a loss of that trade brought forward under the relevant provision (see subsection (4C)) to the relevant period (see subsection (4D).
4C
In subsection (4B) “the relevant provision” is—
a
section 45A(4) of CTA 2010 if—
i
the trade is not a ring fence trade within the meaning of Part 8 of CTA 2010 (see section 277 of that Act), and
ii
relief under section 37 of CTA 2010 would not be unavailable by reason of section 44 of that Act for a loss (assuming there was one) made in the trade in the relevant period (see subsection (4D), and
b
section 45B(2) of CTA 2010 if either of the conditions in paragraph (a) is not met.
4D
In subsection (4B) and (4C) “the relevant period” means—
a
in a case where the company began the trade in the deemed loss-making period and continued to carry on the trade in the following accounting period, that following accounting period, and
b
in a case where the company began the trade in an accounting period after the deemed loss-making period, the accounting period in which the company began the trade.
5
F75Subsections (4) and (4B) are subject to section 1062 (restriction on losses carried forward where tax credit claimed).
1049Restriction on consortium relief
1
This section applies if—
a
a company claims relief under section 1044 or elects to obtain relief under section 1045 in respect of an accounting period,
b
at any time during the period the company is owned by a consortium, and
c
at least one of the members of the consortium is a large company.
2
The amount of the relief obtained in respect of the accounting period may not be surrendered by the company to another company, for the purposes of a consortium group relief claim, unless the other company is a small or medium-sized enterprise.
3
A “consortium group relief claim” means a claim to group relief F80based on consortium condition 1, 2 or 3 in sections 132 and 133 of CTA 2010 (group relief available between members of consortia).
Threshold
F901050R&D threshold
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Qualifying expenditure
1051Qualifying Chapter 2 expenditure
For the purposes of this Part a company's “qualifying Chapter 2 expenditure” means—
a
its qualifying expenditure on in-house direct research and development (see section 1052), and
b
its qualifying expenditure on contracted out research and development (see section 1053).
1052Qualifying expenditure on in-house direct R&D
1
A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of F104conditions A, B, D and E is met.
2
Condition A is that the expenditure is—
a
incurred on staffing costs (see section 1123),
b
incurred on software F153, data licences, cloud computing services or consumable items (see section 1125),
c
qualifying expenditure on externally provided workers (see section 1127), or
d
incurred on relevant payments to the subjects of a clinical trial (see section 1140).
3
Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.
F264
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5
Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.
6
Condition E is that the expenditure is not subsidised (see section 1138).
7
See sections 1124, 1126 F122to 1126B and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development.
1053Qualifying expenditure on contracted out R&D
1
A company's “qualifying expenditure on contracted out research and development” means expenditure—
a
which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and
b
in relation to which each of F38conditions A, C and D is met.
2
Condition A is that the expenditure is attributable to relevant research and development undertaken on behalf of the company.
F1163
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Condition C is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.
5
Condition D is that the expenditure is not subsidised (see section 1138).
6
See sections 1124, 1126 F56to 1126B and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.
Tax credit: entitlement and payment
1054Entitlement to and payment of tax credit
1
A company is entitled to an R&D tax credit for an accounting period if it has a Chapter 2 surrenderable loss in the period (see section 1055).
2
For the company to obtain an R&D tax credit in respect of all or part of the Chapter 2 surrenderable loss it must make a claim.
See section 1057 (which prevents a company from making a claim if it is not a going concern).
3
The amount of an R&D tax credit to which the company is entitled is determined in accordance with section 1058.
4
If a company makes a claim for an R&D tax credit to which it is entitled for an accounting period, an officer of Revenue and Customs must pay to the company the amount of the credit.
This is subject to section 1060.
5
This section is subject to—
F156a
section 1054A (requirement to make a claim notification);
F156b
section 1113 (cap on R&D aid in relation to a particular research and development project)
6
See also section 1062, which restricts the carry forward of losses where a company claims an R&D tax credit.
1054AF142Requirement to make a claim notification
1
A company may not make a claim under section 1054(2) (an “R&D tax credit claim”) after the end of the claim notification period unless—
a
the company has made an R&D claim during the period of three years ending with the last day of the claim notification period,
b
the company makes a claim notification in respect of the R&D tax credit claim within the claim notification period, or
c
the accounting period in respect of which the R&D tax credit claim is made falls within the same period of account as another accounting period in respect of which the company has made an R&D claim or a claim notification.
2
For the purposes of subsection (1)(a) ignore any R&D claim for an accounting period beginning before 1 April 2023 that is included in the company’s company tax return only by virtue of an amendment made on or after that date (see paragraph 83B(2) of Schedule 18 to FA 1998).
C31055Meaning of “Chapter 2 surrenderable loss”
1
For the purposes of this Chapter a company has a “Chapter 2 surrenderable loss” if in an accounting period—
a
it obtains an additional deduction under section 1044 in calculating the profits of a trade and it makes a trading loss in that period in the trade, or
b
it is treated as making a trading loss under section 1045.
2
If relief is obtained under section 1044 the amount of the Chapter 2 surrenderable loss is—
a
so much of the trading loss as is unrelieved, or
b
if less, F17186% of the qualifying Chapter 2 expenditure in respect of which the relief was obtained.
3
If relief is obtained under section 1045 the amount of the Chapter 2 surrenderable loss is so much of the trading loss as is unrelieved.
C141056Amount of trading loss which is “unrelieved”
1
This section applies for the purposes of section 1055.
2
The amount of a trading loss that is “unrelieved” is the amount of the loss reduced by—
a
any relief that was or could have been obtained by the company making a claim under F48section 37(3)(a) of CTA 2010 to deduct the loss from total profits of the same accounting period,
b
any other relief obtained by the company in respect of the loss, including relief under F50section 37(3)(b) or 42 of CTA 2010 (losses deducted from profits of an earlier accounting period), and
3
No account is to be taken for this purpose of any losses—
a
b
carried back from a later accounting period under F120section 37(3)(b) or 42 of that Act.
1057Tax credit only available where company is going concern
1
A company may only make a claim under section 1054 at a time when it is a going concern.
2
If a company ceases to be a going concern after making a claim under section 1054, it is treated as if it had not made the claim (and accordingly there is treated as having been no payment of R&D tax credit to carry interest under section 826 of ICTA).
3
Subsection (2) does not apply so far as the claim relates to an amount that was paid or applied before the company ceased to be a going concern.
4
For the purposes of this section a company is a going concern if—
a
its latest published accounts were prepared on a going concern basis, and
b
nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F79....
F112This is subject to subsection (4A).
F534A
A company is not a going concern at any time if it is in administration or liquidation at that time.
4B
For the purposes of this section a company is in administration if—
a
it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
b
a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.
4C
For the purposes of this section a company is in liquidation if—
a
it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or
b
a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.
F1384D
For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.
4E
For the purposes of this section—
a
a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (4D);
b
A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).
5
Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.
Amount of tax credit
1058Amount of tax credit
C11
The amount of the R&D tax credit to which a company is entitled for an accounting period is F68the lesser of—
F118aa
the amount given by subsection (1A).
F124b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1111A
The amount given by this subsection is the sum of—
a
£20,000, and
b
the amount produced by multiplying by three (“the multiplier”) the company's relevant expenditure on workers for payment periods ending in the accounting period (see section 1058A).
1B
If the accounting period is less than 12 months, the amount specified in subsection (1A)(a) is proportionately reduced.
1C
Subsection (1)(aa) does not apply if section 1058D (exceptions to tax credit cap) applies in relation to the company for the accounting period.
F842
The Treasury may by regulations—
a
replace the percentage for the time being specified in subsection (1)(a) with a different percentage;
b
replace the amount for the time being specified in subsection (1A)(a) with a different amount;
c
replace the multiplier for the time being specified in subsection (1A)(b) with a different multiplier.
3
An order under subsection (2) may contain incidental, supplemental, consequential and transitional provision and savings.
1058AF96Relevant expenditure on workers
1
For the purposes of section 1058, the amount of a company's relevant expenditure on workers for a payment period is the sum of—
a
the total amount of the company's PAYE and NIC liabilities for the payment period (see section 1058B) less any amount deducted in accordance with section 1058C (avoiding double counting of PAYE and NIC liabilities),
b
if the company is connected with another company and has incurred qualifying expenditure on externally provided workers (see section 1127), the relevant portion of any staffing costs for the payment period incurred by the connected company in providing any of those workers for the company (see subsection (2)), and
c
if the company is connected with another company and has incurred qualifying expenditure on contracted out research and development (see section 1053), any staffing costs for the payment period incurred by the connected company in undertaking any of that contracted out research and development on behalf of the company (see subsection (3)).
2
The relevant portion of any staffing costs for a payment period incurred by a connected company in providing externally provided workers for a company is the sum of the amounts to be determined in the case of each of those workers as follows—
Step 1 Calculate the amount of expenditure that—
- a
has been incurred by the connected company in providing the externally provided worker for the company,
- b
has been incurred on staffing costs (see section 1123), and
- c
forms part of the total amount of the connected company's PAYE and NIC liabilities for the payment period.
- a
Step 2 Calculate the percentage (“the appropriate percentage”) given by—
where—
R is the amount of the company's qualifying expenditure on the externally provided worker that has been taken into account in calculating the amount of the company's qualifying Chapter 2 expenditure (see section 1051) for the payment period, and
T is the total amount of the company's qualifying expenditure on the externally provided worker (see section 1127) for the payment period.
Step 3 The amount to be determined in the case of the externally provided worker is the appropriate percentage of the amount given by step 1.
3
The staffing costs for a payment period incurred by a connected company in undertaking contracted out research and development on behalf of a company is the amount of expenditure that—
a
has been incurred by the connected company in undertaking relevant research and development on behalf of the company,
b
has been incurred on staffing costs (see section 1123), and
c
forms part of the total amount of the connected company's PAYE and NIC liabilities for the payment period.
4
If, for the purposes of step 1(c) of subsection (2) or paragraph (c) of subsection (3), it is necessary to calculate the amount of a connected company's PAYE and NIC liabilities for a payment period that falls within (but is shorter than) the connected company's payment period, the total amount for the connected company's payment period is proportionately reduced.
1058BTotal amount of company's PAYE and NIC liabilities
1
For the purposes of section 1058A, the total amount of a company's PAYE and NIC liabilities for a payment period is the sum of—
a
amount A, and
b
amount B.
2
Amount A is the amount of income tax for which the company is required to account to an officer of Revenue and Customs for the payment period under PAYE regulations.
3
In calculating amount A disregard any deduction the company is authorised to make in respect of—
a
child tax credit;
b
working tax credit.
4
Amount B is the amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the payment period.
5
In calculating amount B disregard any deduction the company is authorised to make in respect of—
a
statutory maternity pay;
b
statutory adoption pay;
c
statutory paternity pay;
d
statutory shared parental pay;
e
statutory parental bereavement pay;
f
child tax credit;
g
working tax credit.
1058CAvoiding double counting of PAYE and NIC liabilities
When determining for the purposes of section 1058 a company's relevant expenditure on workers for a payment period (see section 1058A), deduct the following from the total amount of the company's PAYE and NIC liabilities for the payment period—
a
the relevant portion of any staffing costs for the payment period incurred by the company in providing externally provided workers for a connected company (within the meaning given by section 1058A(2));
b
any staffing costs for the payment period incurred by the company in undertaking contracted out research and development on behalf of a connected company (within the meaning given by section 1058A(3)).
1058DExceptions to tax credit cap
1
This section applies (and accordingly, section 1058(1)(aa) does not apply) in relation to a company for an accounting period if the company meets conditions A and B.
2
A company meets condition A for an accounting period if, during the period, the company is engaged in—
a
taking, or preparing to take, steps in order that relevant intellectual property will be created by it,
b
creating relevant intellectual property, or
c
performing a significant amount of management activity in relation to relevant intellectual property it holds.
3
For the purposes of subsection (2)—
a
a company is only engaged in an activity mentioned in paragraph (a), (b) or (c) of subsection (2) if the activity is wholly or mainly undertaken by employees of the company;
b
intellectual property is “relevant” intellectual property in relation to a company if the whole or the greater part (in terms of value) of it is created by the company;
c
intellectual property is created by a company if it is created in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).
4
For the purposes of this section—
“intellectual property” means—
- a
any patent, trade mark, registered design, copyright, design right or plant breeder's right,
- b
any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a), or
- c
any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value;
- a
“management activity”, in relation to intellectual property, means formulating plans and making decisions in relation to the development or exploitation of the intellectual property.
5
A company meets condition B for an accounting period if the amount given by subsection (6) (if any) does not exceed 15% of the company's qualifying Chapter 2 expenditure (see section 1051) for the period.
6
The amount given by this subsection is the sum of the following incurred by the company in the period—
a
qualifying expenditure on externally provided workers (see section 1127), where the company, the staff provider and (if different) the staff controller (or staff controllers)—
i
are all connected (see section 1129), or
ii
have jointly elected (under section 1130) that section 1129 is to apply to them as if they were all connected;
b
qualifying expenditure on contracted out research and development (see section 1053) where the company and the sub-contractor—
i
are connected (see section 1134), or
ii
have jointly elected (under section 1135) that section 1134 is to apply to them as if they were connected.
7
The Treasury may by regulations replace the percentage for the time being specified in subsection (5) with a different percentage.
F291059Total amount of company's PAYE and NIC liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary
1060Payment of tax credit
1
This section applies if an R&D tax credit for an accounting period is payable to a company under this Chapter.
2
The amount payable in respect of—
a
the R&D tax credit, or
b
interest on the credit payable under section 826 of ICTA,
may be applied in discharging any liability of the company to pay corporation tax.
3
So far as the amount is so applied, the duty of the officer of Revenue and Customs to pay the credit under section 1054(4) is discharged.
4
Subsection (5) applies if the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs.
5
In that case—
a
no payment in respect of the R&D tax credit for the period need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but
b
the officer may make a payment on a provisional basis of such amount as the officer thinks fit.
6
No payment need be made in respect of the R&D tax credit if the company has outstanding PAYE and NIC liabilities for the period.
7
A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay—
a
under PAYE regulations, or
b
in respect of Class 1 national insurance contributions,
for payment periods ending in the accounting period.
1061Tax credit payment not income of company
A payment in respect of an R&D tax credit under this Chapter is not income of the company for any tax purposes.
1062Restriction on losses carried forward where tax credit claimed
1
This section applies if a company claims an R&D tax credit to which it is entitled for an accounting period.
C52
C123
The “amount of the surrendered loss” for the period means the amount of the Chapter 2 surrenderable loss in respect of which the company claims an R&D tax credit for the period.
Chapter 3Relief for SMEs: R&D sub-contracted to SME
Relief
F231063Additional deduction in calculating profits of trade
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold
F221064R&D threshold
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying expenditure
F231065Qualifying Chapter 3 expenditure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F471066Expenditure on sub-contracted R&D undertaken in-house
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1411067Expenditure on sub-contracted R&D not undertaken in-house
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 4Relief for SMEs: subsidised and capped expenditure on R&D
Relief
F731068Additional deduction in calculating profits of trade
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold
F891069R&D threshold
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying expenditure
F731070Qualifying Chapter 4 expenditure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1321071Subsidised qualifying expenditure on in-house direct R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1491072Subsidised qualifying expenditure on contracted out R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F731073Capped R&D expenditure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 5Relief for large companies
Relief
F441074Additional deduction in calculating profits of trade
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold
F1131075R&D threshold
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying expenditure
F441076Qualifying Chapter 5 expenditure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1481077Qualifying expenditure on in-house direct R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1501078Qualifying expenditure on contracted out R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F441079Qualifying expenditure on contributions to independent R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance companies
F441080Entitlement to relief: I minus E basis
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 6Chapters 2 to 5: further provision
1081Insurance companies treated as large companies
1
This section applies if an insurance company—
a
carries on life assurance business in an accounting period, and
b
is a small or medium-sized enterprise in the period.
2
For the purposes of F16Chapter 2 the company is to be treated as if it were not such an enterprise in the period.
F1073
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F341082R&D expenditure of group companies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F851083Refunds of expenditure treated as income chargeable to tax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1084Artificially inflated claims for relief or tax credit
1
To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for the purposes mentioned in subsection (2).
2
Those purposes are—
a
determining for an accounting period relief to which a company is entitled under F46Chapter 2 , and
b
determining for an accounting period R&D tax credits to which a company is entitled under Chapter 2.
3
Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain—
a
relief under F39Chapter 2 to which it would not otherwise be entitled,
b
relief under F39Chapter 2 of a greater amount than that to which it would otherwise be entitled,
c
an R&D tax credit under Chapter 2 to which it would not otherwise be entitled, or
d
an R&D tax credit under Chapter 2 of a greater amount than that to which it would otherwise be entitled.
4
In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
Chapter 7Relief for large companies: vaccine research etc
Introductory
F71085Overview of Chapter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71086Meaning of “qualifying R&D activity”
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reliefs
F71087Deduction in calculating profits of trade
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71088Declaration about effect of relief
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F491089SMEs: amount of deduction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F351090Modification of section 1089 for larger SMEs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71091Amount of deduction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F81092SMEs: deemed trading loss for pre-trading expenditure
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F81093Modification of section 1092 for larger SMEs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F81094Relief only available to SME where company is going concern
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed trading loss: further provision
F81095Elections under section 1092
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F81096Treatment of deemed trading loss under section 1092
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold
F281097R&D threshold
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying expenditure
F71098Meaning of “qualifying Chapter 7 expenditure”
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F741099SMEs: qualifying expenditure “for” an accounting period
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71100Qualifying expenditure “for” an accounting period
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71101Qualifying expenditure on in-house direct R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F71102Qualifying expenditure on contracted out R&D
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit: entitlement and payment
F151103Entitlement to and payment of tax credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151104Meaning of “Chapter 7 surrenderable loss”
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151105Amount of trading loss which is “unrelieved”
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151106Tax credit only available where company is going concern
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of tax credit
F151107Amount of tax credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151108Total amount of company's PAYE and NIC liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary
F151109Payment of tax credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151110Tax credit payment not income of company
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F151111Restriction on losses carried forward where tax credit claimed
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax avoidance
F71112Artificially inflated claims for relief
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 8Cap on aid for R&D
1113Cap on R&D aid under Chapter 2 F66...
1
A company is only entitled to qualifying R&D relief in respect of expenditure attributable to a research and development project if, or so far as, the condition in subsection (2) is met at that time.
2
The condition is that the total R&D aid in respect of expenditure by the company attributable to the project would not exceed 7.5 million euros.
3
In subsection (2) “total R&D aid” means the total R&D aid calculated—
a
in accordance with section 1114, and
b
as if a claim or election had been made for the R&D relief mentioned in subsection (1).
4
In this Chapter “qualifying R&D relief” means any relief or R&D tax credit under—
a
Chapter 2 (relief for SMEs: cost of R&D incurred by SME) F30...
F1b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
The Treasury may by regulations—
a
increase the amount specified in subsection (2), and
b
amend this Chapter (apart from this section).
1114Total R&D aid
For the purposes of section 1113 the total R&D aid, in respect of expenditure by a company (“the claimant”) attributable to a research and development project, is calculated as follows—F10
where—
A is the total R&D aid,
TC is the tax credits (see section 1115),
R is the actual reduction in tax liability (see section 1116),
P is the potential relief (see section 1117),
CT is the main rate of corporation tax at the time when the total R&D aid is calculated F51(or, in the case of a ring fence trade (within the meaning of section 277 of CTA 2010) the main ring fence profits rate at that time), and
N is the notional F60R&D expenditure credit (see section 1118).
1115“The tax credits”
1
In section 1114 “the tax credits” means the total R&D tax credits that have been paid to the claimant under Chapter 2 F97... in respect of expenditure attributable to the research and development project.
2
An R&D tax credit that has been claimed but not paid or applied is treated for the purposes of subsection (1) as if it had been paid.
3
Subsection (2) does not apply if the claimant has been informed by Her Majesty's Revenue and Customs that the R&D tax credit will not be paid or applied.
1116“The actual reduction in tax liability”
1
In section 1114 “the actual reduction in tax liability” means the sum of—
a
amounts within subsection (2), and
b
amounts within subsection (3).
2
The amounts within this subsection are those by which the liability of the claimant to pay corporation tax has been reduced in any accounting period in consequence of qualifying R&D relief in respect of expenditure attributable to the research and development project.
3
The amounts within this subsection are those by which the liability of any other company (“C”) to pay corporation tax has been reduced in any accounting period in consequence of a surrendered loss.
4
A “surrendered loss” means a loss which—
a
b
arises in consequence of qualifying R&D relief in respect of expenditure attributable to the project.
1117“The potential relief”
1
In section 1114 “the potential relief” means the total amount of any qualifying R&D relief (other than an R&D tax credit)—
a
in respect of which the claimant has made a claim or election, but
b
which, as at the day on which the total R&D aid is calculated in accordance with section 1114, has not been brought into account by the claimant or by any other company.
2
Qualifying R&D relief is not to be counted for the purposes of subsection (1) if the claimant has been informed by Her Majesty's Revenue and Customs that it is not entitled to the relief.
1118“The notional F52R&D expenditure credit”
1
In section 1114 “the notional F45R&D expenditure credit” means the total amount of F45R&D expenditure credit that the claimant could have claimed under F13Chapter 6A of Part 3 (trade profits: R&D expenditure credits) in any accounting period in respect of qualifying expenditure attributable to the research and development project if the claimant had been a large company throughout the period.
2
“Qualifying expenditure” means expenditure that, in the accounting period in question, was—
a
qualifying Chapter 2 expenditure (see section 1051). F24...
F62b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 9Supplementary
SMEs and large companies
1119“Small or medium-sized enterprise”
1
In this Part “small or medium-sized enterprise” means a micro, small or medium-sized enterprise as defined in Commission Recommendation (EC) No 2003/361, but subject to the qualifications in section 1120 F133(and see sections 1120A and 1120B).
2
3
This section is subject to section 1081 (insurance companies to be treated as large companies for purposes of F58Chapter 2).
1120Qualifications to section 1119
1
This section contains qualifications to the definition of small or medium-sized enterprise in section 1119.
2
The qualifications are—
Qualification 1
In Article 2(1) of the Annex, the references to 250 persons, 50 million euros and 43 million euros are to be read as references to 500 persons, 100 million euros and 86 millions euros (respectively).
Qualification 2
If each of conditions A to D is met, Article 4(2) of the Annex is to be disregarded in determining whether a company (“C”) is within the definition of small or medium-sized enterprise in section 1119 for an accounting period in which C exceeds the employee limit or the financial limits.
3
Condition A is that C is a micro, small or medium-sized enterprise as defined in the Recommendation (or would be if the Annex were read as set out in qualification 1), disregarding any partner enterprise or linked enterprise.
4
Condition B is that a partner enterprise or linked enterprise to which C is related exceeds the employee limit or both of the financial limits, disregarding the number of employees, the annual turnover and the annual balance sheet totals of C.
5
Condition C is that the number of employees, annual turnover or annual balance sheet total (as the case may be) of the partner enterprise or linked enterprise to which C is related has been taken into account in determining whether C exceeded the employee limit or the financial limits.
6
Condition D is that, taken alone, C satisfies the employee limit and at least one of the financial limits.
F1546A
This section is subject to sections 1120A and 1120B.
7
In this section F157and in sections 1120A and 1120B —
a
references to the Recommendation are to the Commission Recommendation mentioned in section 1119(1),
b
references to the Annex are to the Annex to the Recommendation,
c
references to the employee limit are to the limit on the number of employees contained in Article 2(1) of the Annex (read as set out in qualification 1), and
d
references to the financial limits are to the limits on the annual turnover and balance sheet totals contained in Article 2(1) of the Annex (read as set out in qualification 1).
1120AF161Enterprise treated as an SME where related enterprise becomes large
1
This section applies, in relation to an accounting period, where the following conditions are met.
2
The first condition is that, for the duration of the accounting period, an enterprise (“E”) is related to a partner enterprise or linked enterprise (“F”).
3
The second condition is that, at the start of the accounting period, both E and F are small or medium-sized enterprises.
4
The third condition is that, at the end of the accounting period, E is not a small or medium-sized enterprise by reason only that F has, during the accounting period, exceeded the employee limit or either of the financial limits.
5
Both E and F are to be treated as if they were small or medium-sized enterprises for the accounting period.
1120BEnterprise treated as an SME where acquired by an SME
1
This section applies, in relation to an accounting period, where the following conditions are met.
2
The first condition is that, at the start of the accounting period, an enterprise (“E”) was not a small or medium-sized enterprise by reason only that a partner enterprise or linked enterprise to which E was related exceeded the employee limit or either of the financial limits.
3
The second condition is that, during the accounting period, control of E was acquired by a company that, at the time of the acquisition, was a small or medium-sized enterprise.
4
E is to be treated as if it were a small or medium-sized enterprise for the accounting period.
5
In subsection (3) “control” has the same meaning as in section 1124 of CTA 2010.
1121“Larger SME”
References in this Part to a “larger SME” are to a company which is a small or medium-sized enterprise by virtue of qualification 1 in section 1120.
1122“Large company”
In this Part “large company” means a company that is not a small or medium-sized enterprise.
Staffing costs
C71123“Staffing costs”
1
For the purposes of this Part the staffing costs of a company are amounts to which subsection (2), (3), (4), (5) or (7) applies.
2
This subsection applies to an amount paid by the company to a director or an employee of the company which—
a
is earnings consisting of money, and
b
is paid because of the director's or employee's employment.
3
This subsection applies to an amount paid by the company to a director or an employee of the company, other than an amount paid in respect of benefits in kind, if—
a
the amount is paid in respect of expenses paid by the director or employee, and
b
the amount is paid because of the director's or employee's employment.
4
This subsection applies to secondary Class 1 national insurance contributions paid by the company.
5
This subsection applies to compulsory contributions paid by the company in respect of benefits for directors or employees of the company under the social security legislation of an EEA State F25... or Switzerland.
6
In subsection (5) “social security legislation” means legislation relating to any of the branches of social security listed in Article 3(1) of Regulation (EC) No. 883/2004 of the European Parliament and of the Council on the co-ordination of social security systems F115as it had effect in the UK immediately before IP completion day.
7
This subsection applies to contributions paid by the company to a pension fund operated for the benefit of directors or employees of the company.
8
In subsection (7) “pension fund” means a scheme, fund or other arrangement established and maintained (whether in the United Kingdom or elsewhere) for the purpose of providing pension benefits.
For this purpose “scheme” includes a deed, agreement or series of agreements.
9
In subsection (8) “pension benefits” means pensions, retirement annuities, allowances, lump sums, gratuities or other superannuation benefits (with or without subsidiary benefits).
C61124Staffing costs: attributable expenditure
1
This section applies for the purposes of this Part to identify when staffing costs are attributable to relevant research and development.
2
The costs which are so attributable are those paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development.
3
Subsection (4) applies if a director or employee is partly engaged directly and actively in relevant research and development.
4
The appropriate proportion of the staffing costs relating to the director or employee is treated as attributable to relevant research and development.
C135
Subsection (6) applies if persons provide services, such as secretarial or administrative services, in support of activities carried on by others.
C136
Those persons are not, as a result of providing those services, to be treated as themselves directly and actively engaged in those activities.
Software F162, data licences, cloud computing services or consumable items
C21125“Software F151, data licences, cloud computing services or consumable items”
1
For the purposes of this Part expenditure on software F137, data licences, cloud computing services or consumable items means an amount paid by the company in respect of—
a
computer software, F158...
F131aa
data licences,
ab
cloud computing services, or
b
consumable or transformable materials.
F1301A
For the purposes of subsection (1)(aa) a data licence is a licence to access and use a collection of digital data.
1B
For the purposes of subsection (1)(ab) cloud computing services include the provision of access to, and maintenance of, remote—
a
data storage and hardware facilities;
b
operating systems and software platforms.
2
For the purposes of subsection (1)(b) consumable or transformable materials include water, fuel and power.
C41126Software F146, data licences, cloud computing services or consumable items: attributable expenditure
1
This section applies for the purposes of this Part to identify when expenditure on software F129, data licences, cloud computing services or consumable items is attributable to relevant research and development.
2
3
Subsection (4) applies if software F128, data licences, cloud computing services or consumable items are partly employed directly in relevant research and development.
4
The appropriate proportion of the expenditure on the software F167, data licences, cloud computing services or consumable items is treated as attributable to relevant research and development.
5
Subsection (6) applies if software F160, data licences, cloud computing services or consumable items are employed in the provision of services, such as secretarial or administrative services, in support of other activities.
6
The software F164, data licences, cloud computing services or consumable items are not, as a result of their employment in the provision of those services, to be treated as themselves directly employed in those activities.
F97
This section is subject to sections 1126A and 1126B.
1126ZAF136Attributable expenditure: special rules for data and cloud computing
1
Expenditure on data licences or cloud computing services is not to be treated as attributable to relevant research and development if, in connection with the grant of a licence or the provision of a service, a relevant person obtains—
a
a right to sell data in respect of which the licence is granted or the service is provided (as the case may be);
b
a right to publish, share or otherwise communicate data in respect of which the licence is granted or the service is provided (as the case may be) to a third party, other than for the purposes of communications reasonably necessary for, or incidental to, the purposes of the relevant research and development.
2
Expenditure on data licences or cloud computing services is not to be treated as attributable to relevant research and development so far as it is attributable to a qualifying indirect activity.
3
In this section—
“qualifying indirect activity” means an activity mentioned in paragraph 31 of the Guidelines on the Meaning of Research and Development for Tax Purposes issued on 7 March 2023 and as amended from time to time;
“relevant person” has the meaning given in section 1126A(10).
C41126AF36Attributable expenditure: special rules F155for consumable items
1
Expenditure on consumable items is not to be treated as attributable to relevant research and development if—
a
the relevant research and development relates to an item that is produced in the course of the research and development,
b
the consumable items form part of the item produced,
c
the item produced is transferred by a relevant person for consideration in money or money's worth, and
d
the transfer is made in the ordinary course of the relevant person's business.
2
Expenditure on consumable items is not to be treated as attributable to relevant research and development if—
a
the relevant research and development relates to a process of producing an item,
b
the consumable items form part of an item produced in the course of that research and development,
c
the item produced is transferred by a relevant person for consideration in money or money's worth, and
d
the transfer is made in the ordinary course of the relevant person's business.
3
If—
a
the item produced as described in subsection (1) or (2) may be divided, and
b
only a proportion (“the appropriate proportion”) of that item is transferred by a relevant person as described in subsection (1)(c) and (d) or (2)(c) and (d),
the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.
4
If—
a
a number of items are produced in the course of the relevant research and development described in subsection (2), and
b
only a proportion (“the appropriate proportion”) of those items is transferred by a relevant person as described in subsection (2)(c) and (d),
the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.
5
A reference in this section to producing an item includes a reference to preparing an item for transfer.
6
For the purposes of this section a consumable item forms part of an item produced if—
a
it is incorporated into the item produced, or
b
it is turned into, or it and other materials are turned into, the item produced or a part of the item produced.
7
A reference in this section to the transfer of an item is a reference to—
a
the transfer of ownership of an item to another person (whether by sale or otherwise), or
b
the transfer of possession of an item to another person (whether by letting on hire or otherwise),
and a reference to the transfer of an item includes, where the item is incorporated into another item, the transfer of that other item.
8
For the purposes of this section the provision of information obtained in testing an item is not to be regarded as consideration for the transfer of that item.
9
For the purposes of this section a transfer of an item produced in the course of research and development is not to be regarded as a transfer in the ordinary course of business if the item being transferred is waste.
10
In this section—
“item” includes any substance;
“relevant person”, in relation to relevant research and development, means—
- a
the company that incurs the cost of the research and development, whether it is undertaken by itself or contracted out,
- b
the company to which the research and development is contracted out, whether it is undertaken by itself or contracted out,
- c
the person (other than a company) who contracts out the research and development to a company and incurs the cost of the research and development,
- d
the person (other than a company) to whom the research and development is contracted out, or
- e
a person who is connected to a company or person described in paragraph (a), (b), (c) or (d).
- a
C41126BAttributable expenditure: further provision
1
2
Regulations under this section may include provision about—
a
the circumstances in which expenditure on F135data licences, cloud computing services or consumable items employed directly in relevant research and development is, or is not, to be treated as attributable to that relevant research and development;
b
the circumstances in which F147data licences, cloud computing services or consumable items are, or are not, to be treated as employed directly in relevant research and development.
3
Regulations under this section may—
a
make different provision for different purposes;
b
make incidental, consequential, supplementary or transitional provision or savings.
4
Regulations under this section may amend—
a
section 1126;
b
section 1126A;
c
any other provision of this Act, if that is appropriate in consequence of provision made under paragraph (a) or (b).
5
Regulations under this section may make provision that has effect in relation to expenditure incurred before the making of the regulations, provided that it does not increase any person's liability to tax.
Qualifying expenditure on externally provided workers
C81127“Qualifying expenditure on externally provided workers”
1
For the purposes of this Part a company incurs expenditure on externally provided workers if—
a
it makes a payment (a “staff provision payment”) to another person (the “staff provider”), and
b
the payment is in respect of the supply to the company, by or through the staff provider, of the services of any externally provided workers.
2
The company's qualifying expenditure on externally provided workers is determined in accordance with section 1129 or 1131.
3
In sections 1128 to 1131 references to “staff provider” and “staff provision payment” are to be read in accordance with subsection (1).
C8C111128“Externally provided worker”
1
For the purposes of this Part a person is an “externally provided worker” in relation to a company if each of conditions A to G is met.
2
Condition A is that the worker is an individual.
3
Condition B is that the worker is not a director or employee of the company.
4
Condition C is that the worker personally provides, or is under an obligation personally to provide, services to the company.
5
Condition D is that the worker is subject to (or to the right of) supervision, direction or control by the company as to the manner in which those services are provided.
6
Condition E is that the worker's services are supplied to the company through a staff provider (whether or not the worker is a director or employee of the staff provider or any other person).
7
Condition F is that the worker provides, or is under an obligation to provide, those services personally to the company under the terms of a contract between the worker and F33a person other than the company (the “staff controller”).
8
Condition G is that the provision of those services does not constitute the carrying on of activities contracted out by the company.
F1059
In sections 1129 to 1131 references to “staff controller” are to be read in accordance with subsection (7).
C81129Qualifying expenditure on externally provided workers: connected persons
1
This section applies if—
a
a company makes a staff provision payment,
F65b
the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and
c
in accordance with generally accepted accounting practice—
i
the whole of the staff provision payment has been brought into account in determining the staff provider's profit or loss for a relevant period, and
ii
all of the relevant expenditure of each staff controller has been brought into account in determining the staff controller's profit or loss for a relevant period.
2
The company's qualifying expenditure on externally provided workers is—
a
the entire staff provision payment, or
b
if less, an amount equal to F21the aggregate of the relevant expenditure of each staff controller.
3
“Relevant expenditure”F93, in relation to a staff controller, means expenditure that—
a
is incurred by the F106staff controller in providing for the company the externally provided workers to whom the staff provision payment relates,
b
is not of a capital nature, and
c
is incurred on staffing costs or agency workers' remuneration.
4
“Relevant period”F11, in relation to a person, means a period—
a
for which accounts are drawn up for the F126person, and
b
that ends not more than 12 months after the end of the company's period of account in which the staff provision payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.
F1034A
In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
a
section 61S of ITEPA 2003,
b
regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
c
regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.
5
6
“Agency workers' remuneration”, in the case of any person who is an externally provided worker in relation to the company, means remuneration that—
a
is receivable by the worker under or in consequence of the contract mentioned in section 1128(7), but
b
does not constitute employment income of the worker apart from Chapter 7 of Part 2 of ITEPA 2003 (application of provisions to agency workers).
7
Any apportionment of expenditure of the company or F87a staff controller necessary for the purposes of this section is to be made on a just and reasonable basis.
C81130Election for connected persons treatment
F41
If—
a
a company makes a staff provision payment, and
b
the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,
they may jointly elect that section 1129 is to apply to them as if they were all connected.
2
Any such election F95has effect in relation to all staff provision 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.
C81131Qualifying expenditure on externally provided workers: other cases
1
This section applies if—
a
a company makes a staff provision payment,
F18b
the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected, and
c
no election is made under section 1130.
2
The company's qualifying expenditure on externally provided workers is 65% of the staff provision payment.
F373
In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
a
section 61S of ITEPA 2003,
b
regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
c
regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.
1131AF64Sections 1129 and 1131: secondary Class 1 NICS paid by company
1
This section applies if—
a
a company makes a staff provision payment,
b
the company is treated as making a payment of deemed direct earnings the amount of which is calculated by reference to the amount of the staff provision payment, and
c
the company pays a secondary Class 1 national insurance contribution in respect of the payment of deemed direct earnings.
2
In determining the company's qualifying expenditure on externally provided workers in accordance with section 1129(2) or section 1131(2) the amount of the staff payment provision is to be treated as increased by the amount of the contribution.
3
In determining the company's qualifying expenditure on externally provided workers in accordance with section 1129(2) the aggregate of the relevant expenditure of each staff controller is to be treated as increased by the amount of the contribution.
4
But subsection (2) does not apply to the extent that the expenditure incurred by the company in paying the contribution is met directly or indirectly by a staff controller.
5
“A payment of deemed direct earning” means a payment the company is treated as making by reason of regulation 14 of the Social Security Contributions (Intermediaries) Regulations 2000 or regulation 14 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.
C101132External workers: attributable expenditure
1
This section applies for the purposes of this Part to identify when qualifying expenditure on externally provided workers is attributable to relevant research and development.
2
Qualifying expenditure on externally provided workers is so attributable if the workers are directly and actively engaged in relevant research and development.
3
Subsection (4) applies if an externally provided worker is partly engaged directly and actively in relevant research and development.
4
The appropriate proportion of the qualifying expenditure relating to the worker is treated as attributable to relevant research and development.
5
Subsection (6) applies if persons provide services (such as secretarial or administrative services) in support of activities carried on by others.
6
Those persons are not, as a result of providing those services, to be treated as themselves directly and actively engaged in those activities.
Sub-contractor payments
1133“Sub-contractor” and “sub-contractor payment”
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
1134Qualifying element of sub-contractor payment: connected persons
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 F166, 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.
1135Election for connected persons treatment
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 cases
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.
Miscellaneous
1137Accounting periods: company not within charge to corporation tax
1
This section applies to a company if—
a
it is not within the charge to corporation tax, and
b
it incurs qualifying Chapter 2 expenditure F55... .
2
For the purposes of this Part the company is treated as having the accounting periods it would have if—
a
it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and
b
it had started to carry on that trade when it started to carry on relevant research and development.
1138“Subsidised expenditure”
1
For the purposes of this Part a company's expenditure is treated as subsidised—
a
if a notified State aid is, or has been, obtained in respect of—
i
the whole or part of the expenditure, or
ii
any other expenditure (whenever incurred) attributable to the same research and development project,
b
to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure,
c
to the extent that it is otherwise met directly or indirectly by a person other than the company.
2
In this section “notified State aid” means a State aid notified to and approved by the European Commission.
3
For this purpose the following are not State aids—
a
relief under this Part, F3...
b
R&D tax credits under this Part.
F32c
R&D expenditure credits under Chapter 6A of Part 3.
4
For the purposes of this Part a notified State aid, grant, subsidy or payment that is not allocated to particular expenditure is to be allocated to expenditure of the recipient on a just and reasonable basis.
F61139“Intellectual property”
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1139AF139Expenditure incurred on payments
1
References in this Part to expenditure incurred on payments (however expressed) are references to expenditure incurred on payments made before the making of a claim under this Part in relation to that expenditure.
C91140“Relevant payments to the subjects of a clinical trial”
1
For the purposes of this Part “relevant payment”, in relation to a subject of a clinical trial, means a payment made to the subject for participating in the trial.
2
For the purposes of this Part “clinical trial” means an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure.
1141“Payment period”
In this Part a “payment period” means a period—
a
which ends on the fifth day of a month, and
b
for which the company is liable to account for income tax and national insurance contributions to an officer of Revenue and Customs.
1142“Qualifying body”
1
For the purposes of this Part “qualifying body” means—
a
a charity,
b
an institution of higher education,
F19c
an association (in the sense that word has in section 469(1)(a) of CTA 2010) which meets conditions A and B in that section (conditions for qualifying as a scientific research association),
d
a health service body within the meaning of F109section 986 of that Act, or
e
any other body prescribed, or of a description prescribed, by the Treasury, by order, for the purposes of this Part.
2
In subsection (1)(b) “institution of higher education” means—
a
an institution within the higher education sector within the meaning of the Further and Higher Education Act 1992 (c. 13),
b
an institution within the higher education sector within the meaning of Part 2 of the Further and Higher Education (Scotland) Act 1992 (c. 37) or a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44), or
c
a higher education institution within the meaning of Article 30(3) of the Education and Libraries (Northern Ireland) Order 1993 (S.I. 1993/2810 (N.I. 12)).
3
An order under this section is to have effect in relation to the accounting periods or expenditure specified in the order.
4
The order may specify accounting periods beginning, or expenditure incurred, before the time the order is made.
1142AF159“Claim notification” and “claim notification period”
1
For the purposes of this Part—
“claim notification” means, in relation to an R&D claim, a notification made by the company to an officer of His Majesty’s Revenue and Customs in accordance with regulations under subsection (2);
“claim notification period” means, in relation to an R&D claim, the period—
- a
beginning with the first day of the period of account which is the same as the accounting period in respect of which the claim is made, or within which that accounting period falls, and
- b
ending with the last day of the period of six months beginning with the first day after that period of account.
- a
2
The Commissioners for His Majesty’s Revenue and Customs may by regulations specify, in relation to a claim notification—
a
information to be provided with the notification;
b
the form and manner in which the notification is to be made.
1142B“R&D claim”
For the purposes of this Part an “R&D claim” means a claim under—
a
section 104A (R&D expenditure credits),
b
section 1044 (relief for SMEs: additional deduction), or
c
section 1054 (entitlement to R&D tax credit).
Words in s. 1125 cross-heading 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. 3(2), 20