Corporation Tax Act 2009 (c. 4)

Part 3 U.K. Trading income

Modifications etc. (not altering text)

C1 Pt. 3 modified (1.1.2010) by Northern Rock plc (Tax Consequences) Regulations 2009 (S.I. 2009/3227), regs. 1, 4(1)

[F1 CHAPTER 6A U.K. Trade profits: R&D expenditure credits

Textual Amendments

F1 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

Payment of credit U.K.

104N Payment of R&D expenditure credit U.K.

(1) This section applies if a company is entitled to an R&D expenditure credit for an accounting period under this Chapter.

(2) The amount to which the company is entitled in respect of the R&D expenditure credit (“the set-off amount”) is to be treated in the following way—

• Step 1 The set-off amount is to be applied in discharging any liability of the company to pay corporation tax for the accounting period. If any of the set-off amount is remaining, go to step 2.

• Step 2 If the amount remaining after step 1 is greater than the net value of the set-off amount (see subsection (3)), that amount is to be reduced to the net value of the set-off amount. For provision about the treatment of the amount deducted under this step from the amount remaining after step 1, see section 104O.

• Step 3 If the amount remaining after step 2 is greater than the company's total expenditure on workers for the accounting period (see section 104P)—

  (a)

  that amount is to be reduced to the amount of that expenditure (which may be nil), and

  (b)

  the amount deducted under paragraph (a) from the amount remaining after step 2 is to be treated for the purposes of this section as an amount of R&D expenditure credit to which the company is entitled for its next accounting period.

  If any of the set-off amount is remaining, go to step 4.

• Step 4 The amount remaining after step 3 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period. If any of the set-off amount is remaining, go to step 5.

• Step 5 If the company is a member of a group, it may surrender the whole or any part of the amount remaining after step 4 to any other member of the group (see section 104R). If no such surrender is made, or any of the set-off amount is otherwise remaining, go to step 6.

• Step 6 The amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners under or by virtue of an enactment or under a contract settlement. If any of the set-off amount is remaining, go to step 7.

• Step 7 The amount remaining after step 6 is payable to the company by an officer of Revenue and Customs. But this is subject to section 104S (restrictions on payment of R&D expenditure credit).

(3) To determine the net value of the set-off amount for the purposes of step 2 in subsection (2), deduct from the set-off amount amount A and, in the case of a ring fence trade, amount B.

• Amount A is the amount equal to the corporation tax that would be chargeable on the set-off amount if—

  (a)

  it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and

  (b)

  it was an amount of profits (or in the case of a ring fence trade, ring fence profits) of the company for the accounting period and corporation tax on such profits was chargeable at the main rate.

• Amount B is the amount equal to the supplementary charge that would be chargeable on the set-off amount if—

  (a)

  it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and

  (b)

  it was an amount of adjusted ring fence profits for the accounting period.

(4) In this section—

• “adjusted ring fence profits” has the meaning given by section 330(2) of CTA 2010,

• “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs,

• “contract settlement” means an agreement made in connection with any person's liability to make a payment to the Commissioners under or by virtue of an enactment,

• “ring fence profits” has the meaning given by section 276 of CTA 2010, and

• “ring fence trade” has the meaning given by section 277 of CTA 2010.

104O Amounts deducted by way of tax adjustment U.K.

(1) This section applies if—

(a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and

(b) the amount of the set-off amount remaining after step 1 in section 104N(2) is greater than the net value of the set-off amount.

(2) An amount equal to the difference between—

(a) the amount remaining after step 1 in section 104N(2), and

(b) the net value of the set-off amount,

(“the step 2 amount”) is to be applied in discharging any liability of the company to pay corporation tax for any subsequent accounting period.

This is subject to subsection (3).

(3) If the company is a member of a group, it may surrender the whole or any part of the step 2 amount to any other member of the group (the “relevant group member”).

In such a case, section 104R(3) applies to the amount surrendered as it applies to an amount of R&D expenditure credit surrendered under step 5 in section 104N(2).

(4) If any of the amount surrendered under subsection (3) is remaining after the operation of step 3 in section 104R(3), it is to be treated for the purposes of this section as if it had not been surrendered to the relevant group member.

(5) Any amounts to be applied under subsection (2) or (3) in discharging any liability of a company to pay corporation tax for an accounting period are to be so applied before any amounts that may be so applied under step 1, 4 or 5 in section 104N(2).

(6) The surrender by a company of the whole or any part of the step 2 amount to another company under this section—

(a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b) for corporation tax purposes is not to be regarded as the making of a distribution.

(7) Any reference in this section to the set-off amount, or the net value of the set-off amount, is to be read in accordance with section 104N.

104P Total expenditure on workers U.K.

(1) For the purposes of section 104N, the amount of a company's total expenditure on workers for an accounting period is the sum of—

(a) the relevant portion of the company's staffing costs for the period (see subsection (2)), and

(b) if the company is a member of a group and has incurred expenditure on any externally provided workers, the relevant portion of any staffing costs for the period incurred by another member of the group (the “relevant group company”) in providing any of those workers for the company (see subsection (3)).

(2) The relevant portion of the company's staffing costs for an accounting period is the amount of those costs that—

(a) are paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development (whether they are wholly or partly so engaged), and

(b) form part of the total amount of the company's PAYE and NIC liabilities for the accounting period (see section 104Q).

(3) The relevant portion of any staffing costs for an accounting period incurred by a relevant group company in providing externally provided workers for the 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 relevant group company in providing the externally provided worker for the company,

  (b)

  has been incurred on staffing costs, and

  (c)

  forms part of the total amount of the relevant group company's PAYE and NIC liabilities for the accounting period (see section 104Q).

• 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 R&D expenditure for the period, and

  T is the total amount of the company's qualifying expenditure on the externally provided worker.

• 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.

104Q Total amount of company's PAYE and NIC liabilities U.K.

(1) For the purposes of section 104P the total amount of a company's PAYE and NIC liabilities for an accounting period is the sum of—

(a) amount A, and

(b) amount B.

(2) Amount A is the total amount of income tax for which the company is required to account to an officer of Revenue and Customs under PAYE regulations for the accounting period.

(3) In calculating amount A disregard any deduction the company is authorised to make in respect of child tax credit or working tax credit.

(4) Amount B is the total amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the accounting period.

(5) In calculating amount B disregard any deduction the company is authorised to make in respect of payments of statutory sick pay, statutory maternity pay, child tax credit or working tax credit.

(6) In a case where the company is required to account for any amount of income tax or Class 1 national insurance contributions for a payment period that does not fall wholly within the accounting period, the portion of that amount to be included in the total amount of the company's PAYE and NIC liabilities for the accounting period is to be determined on such basis as is just and reasonable in all the circumstances.

104R Surrender of credit to other group companies U.K.

(1) This section applies if—

(a) a company is entitled to an R&D expenditure credit under this Chapter for an accounting period (“the surrender period”), and

(b) the company surrenders the whole or any part of the credit to another member of the group (the “relevant group member”) under step 5 in section 104N(2).

(2) In this section an accounting period of a relevant group member is a “relevant accounting period” if there is a period (“the overlapping period”) that is common to the accounting period and the surrender period.

(3) The amount surrendered is to be applied in discharging any liability of the relevant group member to pay corporation tax for any relevant accounting period as follows—

• Step 1 Take the proportion of the relevant accounting period included in the overlapping period. Apply that proportion to the amount of corporation tax payable by the relevant group member for the relevant accounting period.

• Step 2 Take the proportion of the surrender period included in the overlapping period. Apply that proportion to the amount surrendered to the relevant group member.

• Step 3 The amount given by step 2 is to be applied in discharging the amount given by step 1.

(4) If any of the amount surrendered is remaining after the operation of step 3 in subsection (3), it is to be treated for the purposes of section 104N as if it had not been surrendered to the relevant group member.

(5) The surrender by a company of the whole or any part of an R&D expenditure credit to another company under step 5 in section 104N(2)—

(a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b) for corporation tax purposes is not to be regarded as the making of a distribution.

104S Restrictions on payment of R&D expenditure credit U.K.

(1) This section applies if—

(a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and

(b) an amount of the R&D expenditure credit is payable to the company under step 7 of section 104N(2).

(2) If at the time of claiming the credit the company was not a going concern (see section 104T)—

(a) the company is not entitled to be paid that amount, and

(b) that amount is extinguished.

(3) But if the company becomes a going concern on or before the last day on which an amendment of the company's tax return for the accounting period could be made under paragraph 15 of Schedule 18 to FA 1998, the company is entitled to be paid that amount.

(4) If the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs—

(a) no payment of that amount 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.

(5) No payment of that amount need be made if the company has outstanding PAYE and NIC liabilities for the period.

(6) 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.

104T “Going concern” U.K.

(1) For the purposes of section 104S(2) and (3) 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 R&D expenditure credits under this Chapter.

This is subject to subsection (2).

(2) A company is not a going concern at any time if it is in administration or liquidation at that time.

(3) 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.

(4) 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.

(5) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.]