The Scientific Research Organisations Regulations 2007

EXPLANATORY NOTE

(This note is not part of the Regulations)

Under section 508 (scientific research organisations) of the Income and Corporation Taxes Act 1988 (c. 1), an Association may claim exemption from tax to the same extent available to a charity that applies the whole of its income to charitable purposes. Prior to the amendments made by section 13 of the Finance (No. 2) Act 2005 (c. 22) to section 508, the Secretary of State (for Trade and Industry) approved Associations for the purposes of section 508. Following the amendments, the Secretary of State will no longer approve Associations. Instead, Associations will be required to assess for themselves whether the exemption from tax is available for an accounting period. The exemption is available if an Association has as its object the undertaking of research and development which may lead to or facilitate an extension of any class or classes of trade (the “correct object”) and if it does not distribute its profits to its members.

These Regulations specify what is an Association for the purposes of section 508(1)(a) and the circumstances in which an Association is deemed, or deemed not, to have the correct object. These Regulations also specify the circumstances in which the undertaking of research and development is deemed to be capable of leading to or facilitating an extension of a class of trade.

Part 1 (Introduction) contains regulation 1 which provides for the citation, commencement and effect of these regulations and regulation 2 which provides for interpretation of certain terms used in them.

Part 2 (Associations, objects and profits) contains regulations 3 to 10.

Regulation 3 specifies what is deemed to be an Association for the purposes of section 508(1)(a).

Regulation 4 specifies the circumstances in which an Association is deemed to have the correct object.

Regulation 5 specifies how much of an Association’s income for an accounting period (referred to as the relevant income) must be applied to research and development.

Regulation 6 provides that if the Association fails to apply its relevant income in accordance with regulation 5 within a five year period the Association is deemed not to have the correct object in any accounting period that falls in the sixth year after the period in which that income arose.

Regulation 7 provides that the relevant income of the accounting period is the gross income of the period less amounts paid to pension funds.

Regulations 8 and 9 supplement regulation 7. Regulation 8 provides how the gross income of the accounting period is determined and regulation 9 provides how amounts paid to pension funds are determined.

Regulation 10 provides that amounts arising from earlier accounting periods and applied to research and development in the accounting period do not count in the determination of the amount of the relevant income of the accounting period applied to research and development.

Regulation 11 provides that an Association must not distribute any of its profits.

Part 3 (research and development capable of extending trade) contains regulations 12 to 17.

Regulation 12 specifies the circumstances in which the undertaking of research and development is deemed capable of leading to or facilitating an extension of a class of trade.

Regulation 13 specifies the manner in which research and development may be undertaken.

Regulation 14 provides that the Association must distribute the results of its research and development in specified ways.

Regulation 15 provides that if the Association distributes the results of its research and development in breach of regulation 14 it is deemed not to have the correct object for the accounting period in which the breach occurs.

Regulation 16 provides that the Association must deal with any intellectual property generated by its research and development in specified ways.

Regulation 17 provides that if the intellectual property requirements in regulation 16 are breached the Association is deemed not to have the correct object for the accounting period in which the breach occurs.

An impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.