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Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

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(3) The amount of relief is equal to the amount that would have counted as employment income of the employee under section 426 of ITEPA 2003 had a chargeable event within section 427(3)(c) of that Act occurred immediately before Chapter 2 of Part 7 of that Act ceased to apply to the restricted shares because of the employee's death.

(4) For the purposes of subsection (3)—

(a) the amount of expenses resulting from section 428(6) of ITEPA 2003 is to be treated as nil, and

(b) the following are to be ignored—

(i) sections 428(9) and 446E(6) of ITEPA 2003, and

(ii) the amount of any non-commercial increase (as defined in section 446K(4) of ITEPA 2003) in the market value of the restricted shares after their acquisition.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary provision for purposes of sections 1026 and 1027

1028

(1) If section 1012 or 1020 (reduction in amount of relief) applies in relation to the original relief, that section applies in relation to the relief under this Chapter as it applies in relation to the original relief.

(2) For the purposes of the giving of the relief under this Chapter—

(a) if the original relief is available under Chapter 2, apply section 1013(2) to (5), and

(b) if the original relief is available under Chapter 3, apply section 1021(2) to (5).

Transfer of qualifying business by group transfers

1029

(1) This section applies in relation to relief to be given under this Chapter if—

(a) during the interim period (see subsections (5) to (7)), the whole, or substantially the whole, of the qualifying business is transferred, and

(b) conditions A and B are met.

(2) Condition A is that—

(a) the transfer is a group transfer, or

(b) if there is more than one transfer, all the transfers are group transfers.

(3) Condition B is that, as a result of the transfer or transfers, at the end of the interim period—

(a) the whole, or substantially the whole, of the qualifying business is carried on by one company (“the successor company”) only and that company is not the employing company, or

(b) the whole, or substantially the whole, of the qualifying business is carried on by companies (“the successor companies”) none of which is the employing company.

(4) The relief is to be given to—

(a) the successor company, or

(b) whichever one of the successor companies is nominated by them,

instead of the employing company (and references to the employing company in section 1013(3) and (4) or 1021(3) and (4) (as applied by section 1028(2)) are to be read as references to the company to which the relief is to be given).

(5) “The interim period” is to be read in accordance with subsections (6) and (7).

(6) The interim period begins—

(a) if the original relief is available under Chapter 2, when the restricted shares are acquired, and

(b) if the original relief is available under Chapter 3, when the option is obtained.

(7) The interim period ends—

(a) if the relief under this Chapter is available as a result of the occurrence of a chargeable event, when the chargeable event occurs, and

(b) if the relief under this Chapter is available as a result of the employee's death, when the employee dies.

Chapter 5 — Additional relief in cases involving convertible securities

Application of Chapter

1030

(1) This Chapter applies if relief under Chapter 2 or 3 is available in relation to an acquisition of convertible shares.

(2) This Chapter also applies if—

(a) there is an acquisition of convertible securities that are not shares, and

(b) relief under Chapter 2 or 3 would have been available in relation to the acquisition but for the fact that the securities were not shares in relation to which all the conditions set out in section 1008 or 1016 were met.

(3) For the purposes of subsections (1) and (2)(b) it does not matter if the amount of relief is calculated or would have been calculated as nil.

(4) In this Chapter—

“the acquired securities” means the convertible shares mentioned in subsection (1) or the convertible securities mentioned in subsection (2),

“convertible securities” includes an interest in convertible securities, and

“the original relief” means the relief mentioned in subsection (1) or (2)(b).

(5) If the original relief is or would have been available as a result of section 1015(3) (death of recipient), this Chapter applies as if the recipient were alive and the acquired securities were acquired by the recipient.

(6) If the original relief is or would have been available as a result of section 1022 (takeover of company whose shares are subject to an option), this Chapter applies as if the acquired securities were acquired pursuant to the qualifying option mentioned in that section.

Additional relief available if shares acquired are convertible shares etc

1031

(1) Relief under this Chapter is available to the employing company if, after the acquisition of the acquired securities, a chargeable event (see section 1032) occurs in relation to those securities.

(2) Relief under this Chapter is also available to the employing company if the employee—

(a) is dead when that acquisition occurs, or

(b) dies after that acquisition.

(3) But relief resulting from subsection (2) does not become available until the occurrence of the first event (referred to in this Chapter as “the relief event”) occurring after the employee's death that would have been a chargeable event in relation to the acquired securities had the employee been alive.

(4) To find out what accounting period the relief is given for and how to calculate the amount of relief, see—

(a) section 1033 for relief available as a result of the occurrence of a chargeable event, and

(b) section 1034 for relief available as a result of the employee's death.

Those sections are supplemented by section 1035.

(5) Section 1036 provides for the relief to be given to a successor company if the qualifying business is transferred by group transfers.

Meaning of “chargeable event”

1032

(1) In this Chapter “chargeable event” means an event that—

(a) is a chargeable event for the purposes of section 438 of ITEPA 2003,

(b) is within section 439(3)(a) of ITEPA 2003, and

(2) An event is within this subsection if it is the conversion of convertible securities into shares in relation to which—

(a) if the original relief is or would have been available under Chapter 2, all the conditions set out in section 1008 are met, or

(b) if the original relief is or would have been available under Chapter 3, all the conditions set out in section 1016 are met (ignoring paragraph (f) of condition 3).

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief available on occurrence of chargeable event

1033

(1) This section applies in relation to relief available as a result of the occurrence of a chargeable event.

(2) The relief is given for the accounting period in which the chargeable event occurs.

(3) The amount of relief is equal to the amount that counts as employment income of the employee under section 438 of ITEPA 2003 in relation to the chargeable event.

(4) For the purposes of subsection (3) the following are to be ignored—

(a) any relief under section 442A of ITEPA 2003, and

(b) sections 446G and 446H of ITEPA 2003.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief available following death of employee

1034

(1) This section applies in relation to relief available as a result of the employee's death.

(2) The relief is given for the accounting period in which the relief event occurs.

(3) The amount of relief is equal to the amount that would have counted as employment income of the employee under section 438 of ITEPA 2003 in relation to the relief event had the employee been alive.

(4) For the purposes of subsection (3) sections 446G and 446H of ITEPA 2003 are to be ignored.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary provision for purposes of sections 1033 and 1034

1035

(1) If section 1012 or 1020 (reduction in amount of relief) applies or would have applied in relation to the original relief, that section applies in relation to the relief under this Chapter as it applies or would have applied in relation to the original relief.

(2) For the purposes of the giving of the relief under this Chapter—

(a) if the original relief is or would have been available under Chapter 2, apply section 1013(2) to (5), and

(b) if the original relief is or would have been available under Chapter 3, apply section 1021(2) to (5).

Transfer of qualifying business by group transfers

1036

(1) This section applies in relation to relief to be given under this Chapter if—

(a) during the interim period (see subsections (5) to (7)), the whole, or substantially the whole, of the qualifying business is transferred, and

(b) conditions A and B are met.

(2) Condition A is that—

(a) the transfer is a group transfer, or

(b) if there is more than one transfer, all the transfers are group transfers.

(3) Condition B is that, as a result of the transfer or transfers, at the end of the interim period—

(a) the whole, or substantially the whole, of the qualifying business is carried on by one company (“the successor company”) only and that company is not the employing company, or

(b) the whole, or substantially the whole, of the qualifying business is carried on by companies (“the successor companies”) none of which is the employing company.

(4) The relief is to be given to—

(a) the successor company, or

(b) whichever one of the successor companies is nominated by them,

instead of the employing company (and references to the employing company in section 1013(3) and (4) or 1021(3) and (4) (as applied by section 1035(2)) are to be read as references to the company to which the relief is to be given).

(5) “The interim period” is to be read in accordance with subsections (6) and (7).

(6) The interim period begins—

(a) if the original relief is or would have been available under Chapter 2, when the acquired securities are acquired, and

(b) if the original relief is or would have been available under Chapter 3, when the option is obtained.

(7) The interim period ends—

(a) if the relief under this Chapter is available as a result of the occurrence of a chargeable event, when the chargeable event occurs, and

(b) if the relief under this Chapter is available as a result of the employee's death, when the relief event occurs.

Chapter 6 — Relationship between relief under this Part and other reliefs ETC

Priority of Chapter 1 of Part 11

1037

(1) Deductions available under Chapter 1 of Part 11 (relief for particular employee share acquisition schemes: share incentive plans) are to be given priority over relief under this Part.

(2) No relief is available under this Part in relation to shares in respect of which a deduction is allowable, or has been made, under that Chapter.

Exclusion of other deductions

1038

(1) Subsection (2) applies if relief is or, apart from condition 2 in section 1009(1), would be available under this Part.

For this purpose, it does not matter if the amount of the relief is or would be calculated as nil.

(2) Except as provided for by this Part, for the purpose of calculating any company's profits for corporation tax purposes for any accounting period, no deduction is allowed—

(a) in relation to the provision of the shares or to any matter connected with the provision of the shares, or

(b) so far as not covered by paragraph (a) in a case in which the shares are acquired pursuant to an option, in relation to the option or to any matter connected with the option.

(3) In a case in which section 1022 has applied, in subsection (2)(b) references to the option cover the new option and any relevant earlier qualifying option.

(4) For the purposes of subsection (2) it does not matter if the accounting period in question falls wholly before or after the time at which the shares are acquired.

(5) In a case in which the shares are acquired under an employee share scheme, the deductions disallowed by subsection (2) include (in particular) deductions for amounts paid or payable by the employing company in relation to the participation of the employee in the scheme.

(6) But subsection (2) does not disallow deductions for—

(a) expenses incurred in setting up the scheme,

(b) expenses incurred in meeting, or contributing to, the costs of administering the scheme,

(d) fees, commission, stamp duty, stamp duty reserve tax, and similar incidental expenses of acquiring the shares.

(7) “Employee share scheme” means a scheme or arrangement for enabling shares to be acquired because of persons' employment.

(8) In a case in which relief is or, apart from condition 2 in section 1009(1), would be available under Chapter 5 by virtue of section 1030(2), subsection (2) does not disallow deductions in relation to the provision of the convertible securities.

Part 13 — ... expenditure on research and development

Chapter 1 — Introduction

Introductory

Overview of Part

1039

(1) This Part provides relief for companies that invest in research and development.

(2) Chapter 1A makes relief available in the form of a credit in respect of expenditure on research and development, which becomes payable in certain circumstances.

(3) Chapter 2 makes alternative relief available, in the form of—

(a) an additional deduction in calculating trading profits, and

(b) a payable credit,

to small or medium-sized enterprises that invest heavily in research and development and do not make associated trading profits.

(4) Chapter 8 limits the reliefs provided by Chapters 1A and 2.

(5) Chapter 9 contains definitions and other supplementary provision.

Relief may be available under more than one Chapter of Part

1040

A company is not entitled to relief under Chapter 2 in respect of expenditure if it is entitled to, and claims, relief under Chapter 1A in respect of that expenditure.

Interpretation

“Research and development”

1041

In this Part “research and development” has the meaning given by section 1138 of CTA 2010.

“Relevant research and development”

1042

(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.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2 — Relief for loss-making, R&D-intensive SMEs

Introductory

Overview of Chapter

1043

(1) This Chapter provides relief for companies that are small or medium-sized enterprises, invest heavily in research and development, and do not make associated trading profits.

(2) Section 1044 provides relief in the form of an additional deduction where the investment is made in the course of a loss-making trade.

(3) Section 1045 provides relief in the form of a deemed trading loss where the investment is made the course of activities that do not yet amount to the carrying on of a trade.

(4) Section 1045ZA specifies the intensity of spending on research and development needed for a company to qualify for relief under section 1044 or 1045.

(5) Sections 1047 and 1048 make provision about the procedure for claiming, and the effect of, relief under section 1045.

(6) Section 1049 restricts consortium relief where relief under section 1044 or 1045 is claimed.

(7) Sections 1051 to 1053 describe the expenditure by reference to which the entitlement to relief under section 1044 or 1045 arises.

(8) Sections 1054 to 1062 provide further relief in the form of a payable credit (called an “R&D tax credit”) in respect of trading losses increased or generated by relief under section 1044 or 1045.

(9) Section 1062A excludes certain insurance companies.

(10) This Chapter has to be read with Chapter 8, which limits the entitlements given by this Chapter in various respects.

Reliefs

Additional deduction in calculating profits of trade

1044

(1) A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to F.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

(2A) Condition B is that the company—

(a) meets the R&D intensity condition in the period, or

(b) obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

(5A) Condition E is that the company makes a loss in the trade in the period.

(5B) Condition F is that the company is not an ineligible company (see section 1142).

(6) For the company to obtain the relief it must make a claim (see Part 9A of Schedule 18 to the FA 1998, and also sections 1045A and 1112F).

...

(7) The relief is an additional deduction in calculating the profits of the trade for the period. The deduction is, in particular, additional to any given under section 87.

(8) The amount of the additional deduction is 86% of the qualifying Chapter 2 expenditure.

(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) For the meaning of “qualifying Chapter 2 expenditure” see section 1051.

Alternative treatment for pre-trading expenditure: deemed trading loss

1045

(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.

(2A) Condition B is that the company—

(a) meets the R&D intensity condition in the period, or

(b) obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

(4A) Condition D is that the company is not an ineligible company (see section 1142).

(5) For the company to obtain the relief it must make an election (see section 1047, and also section 1112F).

...

(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 186% 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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

Relief only available where company is going concern

1046

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Elections under section 1045

1047

(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.

Treatment of deemed trading loss under section 1045

1048

(1) This section applies if under section 1045 a company is treated as making a trading loss in an accounting period (“the deemed loss-making period”).

(2) The trading loss may not be deducted from profits of a preceding accounting period under section 37(3)(b) or 42 of CTA 2010 unless the company is entitled to relief under section 1045 for the earlier period.

(3) Subsection (4) applies if—

(za) the deemed loss-making period begins before 1 April 2017,

(a) the company begins, in the 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 Part 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 section 45 of CTA 2010 (relief of trading losses against future trading profits).

(4A) 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) Subsections (4) and (4B) are subject to section 1062 (restriction on losses carried forward where tax credit claimed).

Restriction on consortium relief

1049

(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

(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 based on consortium condition 1, 2 or 3 in sections 132 and 133 of CTA 2010 (group relief available between members of consortia).

Threshold

R&D threshold

1050

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure

Qualifying Chapter 2 expenditure

1051

For the purposes of this Part a company's “qualifying Chapter 2 expenditure” is such of its expenditure as is qualifying Chapter 2 expenditure by virtue of section 1052, 1053 or 1053A.

Qualifying expenditure on in-house direct R&D

1052

(1) Expenditure of a company is qualifying Chapter 2 expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development undertaken by the company itself.

(3) Condition B is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software, data licences, cloud computing services or consumable items (see section 1125),

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(4) Condition C is that the research and development is not contracted out to the company (see section 1133).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development.

Qualifying expenditure on contracted out R&D

1053

(1) Expenditure of a company is qualifying Chapter 2 expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development contracted out by the company (see section 1133).

(3) Condition B is that the research and development is not also contracted out to the company (see section 1133).

(4) Condition C is that the expenditure is incurred in making the qualifying element of a contractor payment (see sections 1133 to 1136).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Tax credit: entitlement and payment

Entitlement to and payment of tax credit

1054

(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 Part 9A of Schedule 18 to the FA 1998, and also sections 1054A and 1112F).

...

(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 1112H.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) See also section 1062, which restricts the carry forward of losses where a company claims an R&D tax credit.

Meaning of “Chapter 2 surrenderable loss”

1055

(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, 186% 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.

Amount of trading loss which is “unrelieved”

1056

(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 section 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 section 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) brought forward from an earlier accounting period under section 45, 45A or 45B of CTA 2010, or

(b) carried back from a later accounting period under section 37(3)(b) or 42 of that Act.

Tax credit only available where company is going concern

1057

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of tax credit

1058

(1) The amount of the R&D tax credit to which a company is entitled for an accounting period is the lesser of—

(a) 14.5% of the amount of the Chapter 2 surrenderable loss for the period, ... and

(aa) the amount of the cap by reference to the company’s PAYE and NIC liabilities for the accounting period (see section 1112B).

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) The Treasury may by regulations—

(a) replace the percentage for the time being specified in subsection (1)(a) with a different percentage;

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total amount of company’s PAYE and NIC liabilities

1059

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

Payment of tax credit

1060

(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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax credit payment not income of company

1061

A payment in respect of an R&D tax credit under this Chapter is not income of the company for any tax purposes.

Restriction on losses carried forward where tax credit claimed

1062

(1) This section applies if a company claims an R&D tax credit to which it is entitled for an accounting period.

(2) For the purposes of sections 45, 45A and 45B of CTA 2010 (relief of trading losses against future ... profits) the company's trading loss for the period is treated as reduced by the amount of the surrendered loss for the period.

(3) 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 3 — Relief for SMEs: R&D sub-contracted to SME

Relief

Additional deduction in calculating profits of trade

1063

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Threshold

R&D threshold

1064

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure

Qualifying Chapter 3 expenditure

1065

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expenditure on sub-contracted R&D undertaken in-house

1066

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expenditure on sub-contracted R&D not undertaken in-house

1067

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 4 — Relief for SMEs: subsidised and capped expenditure on R&D

Relief

Additional deduction in calculating profits of trade

1068

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Threshold

R&D threshold

1069

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure

Qualifying Chapter 4 expenditure

1070

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subsidised qualifying expenditure on in-house direct R&D

1071

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subsidised qualifying expenditure on contracted out R&D

1072

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capped R&D expenditure

1073

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5 — Relief for large companies

Relief

Additional deduction in calculating profits of trade

1074

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Threshold

R&D threshold

1075

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure

Qualifying Chapter 5 expenditure

1076

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on in-house direct R&D

1077

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on contracted out R&D

1078

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on contributions to independent R&D

1079

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Insurance companies

Entitlement to relief: I minus E basis

1080

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6 — Chapters 2 to 5: further provision

Insurance companies treated as large companies

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

R&D expenditure of group companies

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Refunds of expenditure treated as income chargeable to tax

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Artificially inflated claims for relief or tax credit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 7 — Relief for large companies: vaccine research etc

Introductory

Overview of Chapter

1085

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “qualifying R&D activity”

1086

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reliefs

Deduction in calculating profits of trade

1087

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Large companies: declaration about effect of relief

1088

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SMEs: amount of deduction

1089

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Modification of section 1089 for larger SMEs

1090

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Large companies: amount of deduction

1091

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SMEs: deemed trading loss for pre-trading expenditure

1092

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Modification of section 1092 for larger SMEs

1093

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief only available to SME where company is going concern

1094

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deemed trading loss: further provision

Elections under section 1092

1095

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of deemed trading loss under section 1092

1096

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Threshold

R&D threshold

1097

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure

Meaning of “qualifying Chapter 7 expenditure”

1098

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SMEs: qualifying expenditure “for” an accounting period

1099

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Large companies: qualifying expenditure “for” an accounting period

1100

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on in-house direct R&D

1101

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on contracted out R&D

1102

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax credit: entitlement and payment

Entitlement to and payment of tax credit

1103

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “Chapter 7 surrenderable loss”

1104

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of trading loss which is “unrelieved”

1105

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax credit only available where company is going concern

1106

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of tax credit

1107

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total amount of company’s PAYE and NIC liabilities

1108

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

Payment of tax credit

1109

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax credit payment not income of company

1110

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restriction on losses carried forward where tax credit claimed

1111

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax avoidance

Artificially inflated claims for relief or tax credit

1112

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 8 — Restrictions on relief under this Part

Cap on R&D aid under Chapter 2 or 7

1113

(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) ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) The Treasury may by regulations—

(a) increase the amount specified in subsection (2), and

(b) amend this Chapter (apart from this section).

Total R&D aid

1114

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—

“The tax credits”

1115

(1) In section 1114 “the tax credits” means the total R&D tax credits that have been paid to the claimant under Chapter 2 ... 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.

“The actual reduction in tax liability”

1116

(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) is surrendered to C by the claimant under Part 5 or Part 5A of CTA 2010 (surrender of relief between members of groups and consortia), and

(b) arises in consequence of qualifying R&D relief in respect of expenditure attributable to the project.

“The potential relief”

1117

(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.

“The notional relief”

1118

(1) In section 1114 “the notional R&D expenditure credit” means the total amount of R&D expenditure credit that the claimant could have claimed under Chapter 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). ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 9 — Supplementary

SMEs and large companies

“Small or medium-sized enterprise”

1119

(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 (and see sections 1120A and 1120B).

(2) The Treasury may by order amend this section or sections 1120 to 1120B to substitute a different definition of “small or medium-sized enterprise” for the purposes of this Part.

(3) This section is subject to section 1081 (insurance companies to be treated as large companies for purposes of Chapter 2).

Qualifications to section 1119

1120

(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.

(6A) This section is subject to sections 1120A and 1120B.

(7) In this section and 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).

“Larger SME”

1121

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.

“Large company”

1122

In this Part “large company” means a company that is not a small or medium-sized enterprise.

Staffing costs

“Staffing costs”

1123

(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 ... 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 as 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).

Staffing costs: attributable expenditure

1124

(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.

(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.

Software , data licences, cloud computing services or consumable items

“Software or consumable items”

1125

(1) For the purposes of this Part expenditure on software , data licences, cloud computing services or consumable items means an amount paid by the company in respect of—

(a) computer software, ...

(aa) data licences,

(ab) cloud computing services, or

(b) consumable or transformable materials.

(1A) 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.

Software or consumable items: attributable expenditure

1126

(1) This section applies for the purposes of this Part to identify when expenditure on software , data licences, cloud computing services or consumable items is attributable to relevant research and development.

(2) Expenditure on software , data licences, cloud computing services or consumable items is so attributable if the software , data licences, cloud computing services or consumable items are employed directly in relevant research and development.

(3) Subsection (4) applies if software , 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 , data licences, cloud computing services or consumable items is treated as attributable to relevant research and development.

(5) Subsection (6) applies if software , 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 , 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.

(7) This section is subject to sections 1126A and 1126B.

Qualifying expenditure on externally provided workers

“Qualifying expenditure on externally provided workers”

1127

(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).

“Externally provided worker”

1128

(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 a 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.

(9) In sections 1129 to 1132A references to “staff controller” are to be read in accordance with subsection (7).

Qualifying expenditure on externally provided workers: connected persons

1129

(1) This section applies if—

(a) a company makes a staff provision payment,

(b) the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and

(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 the aggregate of the relevant expenditure of each staff controller.

(3) “Relevant expenditure”, in relation to a staff controller, means expenditure that—

(a) is incurred by the staff controller in providing for the company the externally provided workers to whom the staff provision payment relates,

(b) is not of a capital nature, ...

(d) is attributable to qualifying earnings of externally provided workers.

(4) “Relevant period”, in relation to a person, means a period—

(a) for which accounts are drawn up for the person, 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.

(4A) 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

(5) In section 1123 (meaning of “staffing costs”), which applies for the purpose of determining whether the expenditure of a staff controller meets the requirements of subsection (3)(c), references to a company are to be read as references to a staff controller.

(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 a staff controller necessary for the purposes of this section is to be made on a just and reasonable basis.

Election for connected persons treatment

1130

(1) 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 has 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.

Qualifying expenditure on externally provided workers: other cases

1131

(1) This section applies if—

(a) a company makes a staff provision payment,

(b) the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected, and

(2) The company's qualifying expenditure on externally provided workers is 65% of so much of the staff provision payment as is attributable to qualifying earnings of externally provided workers.

(3) 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

(4) Any apportionment of expenditure of the company necessary for the purposes of this section is to be made on a just and reasonable basis.

External workers: attributable expenditure

1132

(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.

Contracting out

“Sub-contractor” and “sub-contractor payment”

1133

(1) This section applies for the purposes of this Part.

(2) A person “contracts out” research and development if—

(a) the person enters into a contract under which activities are to be undertaken for it (whether by another party to the contract or by a sub-contractor),

(b) the activities undertaken in order to meet the obligations owed to the person under the contract include research and development, and

(c) it is reasonable to assume, having regard to the terms of the contract and any surrounding circumstances, that the person intended or contemplated when entering into the contract that research and development of that sort would be undertaken in order to meet those obligations.

(3) The research and development that is “contracted out” is the research and development referred to in subsection (2)(b), to the extent that subsection (2)(c) is satisfied in relation to it.

(4) Research and development contracted out by a person is contracted out “to”—

(a) the party to the contract who undertakes the obligations referred to in subsection (2)(b), and

(b) any sub-contractor who undertakes contractual responsibility for the activities needed to meet those obligations.

(5) References to a sub-contractor include any sub-contractor at one or more removes from the contract referred to in subsection (2).

(6) A “contractor payment” is a payment made in respect of contracted out research and development to a person to whom it is contracted out.

(7) A payment that relates only partly to contracted out research and development is to be apportioned on a just and reasonable basis for the purposes of subsection (6).

(8) Sections 1134 to 1136 determine the “qualifying element” of a contractor payment.

Qualifying element of sub-contractor payment: connected persons

1134

(1) This section applies if—

(a) a company (“A”) makes a contractor payment to another person (“B”),

(b) A and B are connected, and

(c) in accordance with generally accepted accounting practice, the whole of the ... payment and all of B’s relevant expenditure have been brought into account in determining B’s profit or loss for a relevant period.

(2) The qualifying element of the ... payment is—

(a) the entire payment, or

(b) if less, an amount equal to B’s relevant expenditure.

(3) “Relevant expenditure” of B means expenditure that—

(a) is incurred by B in carrying on, on behalf of the company, the activities to which the ... payment relates,

(b) is not of a capital nature,

(c) is incurred on staffing costs, software , 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

(e) is incurred in respect of—

(i) research and development that is undertaken in the United Kingdom, or

(ii) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) “Relevant period” means a period—

(a) for which accounts are drawn up for B, and

(b) that ends not more than 12 months after the end of A’s period of account in which the contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining A’s profit or loss.

(5) In section 1123 (staffing costs) and sections 1127 to 1131 (qualifying expenditure on externally provided workers) as they apply for the purposes of subsection (3)(c), references to a company are to be read as references to B.

(6) Any apportionment of expenditure of A or B necessary for the purposes of this section is to be made on a just and reasonable basis.

Election for connected persons treatment

1135

(1) Where a company makes a contractor payment to a person with whom it is not connected, the company and that person 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 contractor payments paid under the same contract or ....

(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 ... is entered into.

(5) An election under this section is irrevocable.

Qualifying element of sub-contractor payment: other cases

1136

(1) This section applies to a contractor payment to which section 1134 does not apply.

(2) The qualifying element of the payment is 65% of the relevant portion of the payment.

(3) The relevant portion is the portion that is incurred in respect of—

(a) research and development that is undertaken in the United Kingdom, or

(b) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) An apportionment of expenditure necessary for the purposes of this section is to be made on a just and reasonable basis.

Miscellaneous

Accounting periods: company not within charge to corporation tax

1137

(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 ... .

(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.

“Subsidised expenditure”

1138

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“Intellectual property”

1139

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“Relevant payments to the subjects of a clinical trial”

1140

(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.

“Payment period”

1141

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.

“Qualifying body”

1142

(1) For the purposes of this Part a company is an “ineligible company” if it is—

(a) a charity,

(b) an institution of higher education,

(c) 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 section 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.

(5) Two companies that are in the same group may make a joint election the effect of which is that—

(a) in respect of any research and development contracted out by one of those companies to the other, the company contracting it out is to be treated for the purposes of this Part as an ineligible company, and

(b) in determining whether activity is research and development for the purposes of this Part, anything done by one of those companies further to a contract with the other is to be treated as if done by the other company, in any case where that results in activity that would not otherwise be research and development being regarded as such.

(6) Such an election—

(a) must be made by notice in writing to an officer of Revenue and Customs, and

(b) has effect until—

(i) it is revoked by either company by further such notice, or

(ii) the companies are no longer in the same group.

Part 14 — Remediation of contaminated or derelict land

Chapter 1 — Introduction

Introductory

Overview of Part

1143

(1) This Part provides for corporation tax relief for expenditure on land in the United Kingdom, where the expenditure is incurred for the purpose of remedying contamination or dereliction of the land.

(2) The reliefs available under Chapter 2 are—

(a) a deduction in calculating the profits of a UK property business or a trade carried on by a company for expenditure which is capital expenditure, and

(b) an additional deduction for expenditure which is allowed as a deduction in calculating the profits of such a business or trade.

(3) Chapter 3 provides for the payment of tax credits (“land remediation tax credits”) where a company—

(a) obtains relief under Chapter 2, and

(b) makes a loss in a UK property business or a trade.

(4) Chapter 4 contains provision about—

(a) the relief available to a company which carries on basic life assurance and general annuity business, and

(b) the payment of tax credits (“BLAGAB tax credits”) to such a company.

(5) Chapter 5 contains an anti-avoidance provision dealing with artificially inflated claims for relief under this Part or tax credits.

(6) Chapter 6 contains supplementary provision, including definitions.

(7) For information about the procedure for making claims under this Part see Schedule 18 to FA 1998, in particular Part 9B (claims relating to remediation of contaminated or derelict land) of that Schedule.

Basic definitions

“Qualifying land remediation expenditure”

1144

(1) For the purposes of this Part a company's “qualifying land remediation expenditure” means expenditure incurred by it in relation to which each of conditions A to F is met.

(2) Condition A is that it is expenditure on land all or part of which is in a contaminated state (see section 1145) or a derelict state (see section 1145A).

(3) Condition B is that the expenditure would not have been incurred if the land had not been in a contaminated or derelict state.

(4) Condition C is that it is—

(a) in the case of land in a contaminated state, expenditure on relevant contaminated land remediation undertaken by the company (see section 1146), or

(b) in the case of land in a derelict state, expenditure on relevant derelict land remediation so undertaken (see section 1146A).

(5) Condition D is that the expenditure is—

(a) incurred on staffing costs (see section 1170),

(b) incurred on materials (see section 1172),

(c) incurred in respect of relevant land remediation contracted out by the company to another person with whom the company is not connected, or

(d) qualifying expenditure on connected sub-contracted land remediation (see section 1175).

(6) Condition E is that the expenditure is not subsidised (see section 1177).

(6A) Condition F is that the expenditure is not incurred on landfill tax.

(7) See also section 1173 for provision about some cases in which condition B is treated as met.

Land “in a contaminated state”

1145

(1) For the purposes of this Part land is in a contaminated state if (and only if), because of something in, on or under the land, the land is in a condition such that—

(a) relevant harm is being caused, or

(b) there is a serious possibility that relevant harm will be caused.

(2) But land is not in a contaminated state by reason of the presence in, on or under it of—

(a) living organisms or decaying matter deriving from living organisms, air or water, or

(b) anything present otherwise than as a result of industrial activity.

(3) The Treasury may by order specify circumstances in which subsection (2) is not to apply to the extent specified in the order; and an order under this subsection may contain incidental, supplemental, consequential and transitional provision and savings.

(4) In this section “relevant harm” means—

(a) death of living organisms or significant injury or damage to living organisms,

(b) significant pollution of controlled waters,

(d) structural or other significant damage to buildings or other structures or interference with buildings or other structures that significantly compromises their use.

“Relevant land remediation”

1146

(1) For the purposes of this Part "relevant contaminated land remediation”, in relation to land which is in a contaminated state and in which a major interest has been acquired by a company, means—

(a) activities in relation to which conditions A to C are met, and

(b) if there are such activities, relevant preparatory activity.

(2) Condition A is that the activities comprise the doing of any works, the carrying out of any operations or the taking of any steps in relation to—

(a) the land in question,

(b) any controlled waters affected by that land, or

(3) Condition B is that the purpose of the activities is—

(a) to prevent or minimise, or remedy or mitigate the effects of, any relevant harm by virtue of which the land is in a contaminated state, . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3A) Condition C is that the activities are not—

(a) activities of a description specified by order made by the Treasury, or

(b) activities required by or by virtue of any enactment specified by such an order.

(3B) An order under subsection (3A) may contain incidental, supplemental, consequential and transitional provision and savings.

(4) For the purposes of subsection (1)(b) “relevant preparatory activity” means activity—

(a) which comprises the doing of anything for the purpose of assessing the condition of—

(i) the land in question,

(ii) any controlled waters affected by that land, or

(iii) any land adjoining or adjacent to that land, and

(b) which is connected to such activities within subsection (1)(a) as are undertaken by the company itself or on its behalf.

(5) For the purposes of this section controlled waters are “affected by” land in a contaminated state if (and only if) because of something in, on or under the land by virtue of which it is contaminated land, the land is in a condition such that—

(a) significant pollution of those waters is being caused, or

(b) there is a serious possibility that significant pollution of those waters will be caused.

Chapter 2 — Reliefs for expenditure on contaminated or derelict land

Deduction for capital expenditure

1147

(1) A company is entitled to relief for an accounting period if conditions A, B and C are met.

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