C1Part 3Trading income
F1CHAPTER 6ATrade profits: R&D expenditure credits
Pt. 3 Ch. 6A inserted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 1
Large companies: qualifying R&D expenditure
104JQualifying 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 conditions A, B and C are met.
2
Condition A is that the expenditure is—
a
incurred on staffing costs (see section 1123),
b
incurred on software 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.
4
Condition C is that, if the expenditure is incurred in carrying on activities contracted out to the company, the activities are contracted out by—
a
a large company, or
b
any person otherwise than in the course of carrying on a chargeable trade.
5
A “chargeable trade” is—
a
a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or
b
a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part.
6
See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development.
104KQualifying expenditure on contracted out R&D
1
A company's “qualifying expenditure on contracted out research and development” means expenditure incurred by it in relation to which each of conditions A to D is met.
2
Condition A is that the expenditure is incurred in making payments to—
a
a qualifying body,
b
an individual, or
c
a firm, each member of which is an individual,
in respect of research and development contracted out by the company to the body, individual or firm concerned (“the contracted out R&D”).
3
Condition B is that the body, individual or firm concerned undertakes the contracted out R&D itself.
4
Condition C is that the expenditure is attributable to relevant research and development in relation to the company.
5
Condition D is that, if the contracted out R&D is itself contracted out to the company, it is contracted out by—
a
a large company, or
b
any person otherwise than in the course of carrying on a chargeable trade.
6
A “chargeable trade” is—
a
a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or
b
a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part.
7
See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.
104LQualifying expenditure on contributions to independent R&D
1
A company's “qualifying expenditure on contributions to independent research and development” means expenditure incurred by it in relation to which each of conditions A to E is met.
2
Condition A is that the expenditure is incurred in making payments to—
a
a qualifying body,
b
an individual, or
c
a firm, each member of which is an individual,
for the purpose of funding research and development carried on by the body, individual or firm concerned (“the funded R&D”).
3
Condition B is that the funded R&D is relevant research and development in relation to the company.
4
Condition C is that the funded R&D is not contracted out to the qualifying body, individual or firm concerned by another person.
5
Condition D is that, if the payment is made to an individual, the company is not connected with the individual when the payment is made.
6
Condition E is that, if the payment is made to a firm (other than a qualifying body), the company is not connected with any member of the firm when the payment is made.
Pt. 3 modified (1.1.2010) by Northern Rock plc (Tax Consequences) Regulations 2009 (S.I. 2009/3227), regs. 1, 4(1)