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Amendment of section 766 (tax credit for research and development expenditure) of Principal Act.
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54.— (1) Section 766 of the Principal Act is amended—
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(a) in subsection (1)(a) in the definition of “ qualified company” by substituting the following for subparagraphs (ii) and (iii):
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“(ii) carries out research and development activities in the relevant period,
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(iii) maintains a record of expenditure incurred by it in the carrying out by it of those activities, and
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(iv) in the case of a company which is a member of a group of companies that carries on research and development activities in separate geographical locations, maintains separate records of expenditure incurred in respect of the activities carried on at each location;”,
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(b) in subsection (1)(a) by inserting the following definition after the definition of “research and development activities”:
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“ ‘research and development centre’ means a fixed base or bases, established in buildings or structures, which are used for the purpose of the carrying on by a company of research and development activities;”,
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(c) in subsection (1)(a) in the definition of “threshold amount” by deleting “but expenditure incurred by a company which is a member of the group for a part of the threshold period shall only be included in the threshold amount if the expenditure is incurred at a time when the company is a member of the group” and substituting the following:
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“but—
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(i) expenditure incurred by a company which is a member of the group for a part of the threshold period shall only be included in the threshold amount if the expenditure is incurred at a time when the company is a member of the group, and
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(ii) subject to subsection (7C)(a)—
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(I) where at any time during the threshold period, a group of companies carried on research and development activities in more than one research and development centre and each centre is in a separate geographical location, and
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(II) at a time (referred to in this section as the ‘ cessation time’) after the end of the threshold period, a research and development centre ceases to be used for the purposes of a trade by a company which is a member of the group of companies and is not so used by any other company which is a member of the group,
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then expenditure incurred in relation to that research and development centre shall not be taken into account in calculating the threshold amount in relation to any relevant period which commences after the cessation time”,
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(d) in subsection (1)(b)(vi)(I) by substituting “research and development,” for “research and development, and”,
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(e) in subsection (1)(b)(vi) by substituting the following for clause (II):
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“(II) begins to carry on a trade after that time, and”,
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(f) in subsection (1)(b)(vi) by inserting the following after clause (II):
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“(III) makes a claim in respect of expenditure incurred at a time referred to in clause (I),”,
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(g) in subsection (1)(b)(vi) by deleting “the expenditure shall be treated as it would if the company had commenced to carry on the trade at the time the expenditure was incurred;” and substituting the following:
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“the expenditure shall be treated—
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(A) for the purpose only of subsection (5), as incurred at the time the company begins to carry on the trade, and
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(B) for the purposes of subsection (2), as it would if the company had commenced to carry on a trade at the time the expenditure was incurred, and the amount of any credit computed thereon shall be carried forward in accordance with subsection (4) and treated as an amount by which the corporation tax of the first accounting period which commenced on or after the time the company begins to trade is reduced;”,
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(h) in subsection (1)(b)(viii) by substituting “research and development activities;” for “research and development activities.”,
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(i) in subsection (1)(b) by inserting the following after subparagraph (viii):
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“(ix) A research and development centre used by a company which is a member of a group of companies will be treated as being in a separate geographical location to another research and development centre used by the company or another company which is a member of the group if it is not less than a distance of 20 kilometres from that other research and development centre.”,
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(j) in subsection (4B)(b)(ii)(II) by substituting “of the excess remaining as reduced” for “by which the excess remaining is reduced”,
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(k) in subsection (7B) by deleting “section 1006A(2)” and substituting “section 960H(2)”, and
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(l) by inserting the following after subsection (7B):
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“(7C) (a) Subparagraph (ii) of the definition of ‘threshold amount’ shall not apply in relation to a relevant period (in this paragraph referred to as the ‘first-mentioned relevant period’) or any relevant period subsequent to that relevant period, where, at a time during that first-mentioned relevant period or any later relevant period, being a time subsequent to the cessation time—
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(i) the research and development centre referred to in clause (II) of subparagraph (ii) of the definition of ‘threshold amount’ is used for the purposes of a trade by a company which is a member of the group, or
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(ii) activities substantially the same as the research and development activities which were carried on in that research and development centre at any time in the 48 months immediately preceding the cessation time are carried on by a company which is a member of the group of companies.
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(b) Where—
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(i) by virtue of subparagraph (ii) of the definition of ‘threshold amount’, expenditure incurred in the threshold period is not taken into account in calculating the threshold amount in relation to a relevant period, and
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(ii) by virtue of paragraph (a) of this subsection, subparagraph (ii) of that definition does not apply in relation to a subsequent relevant period,
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then, in respect of the accounting period commencing at the same time as that subsequent relevant period or where no accounting period commences at that time, the first accounting period commencing after that time, the company referred to in subparagraph (i) or (ii) of paragraph (a), as the case may be, shall be charged to tax under Case IV of Schedule D on an amount equal to the aggregate of the amounts by which the qualifying group expenditure on research and development has been increased, as a result of a reduction in the threshold amount by virtue of subparagraph (ii) of the definition of threshold amount, for relevant periods, taking account of each relevant period in respect of which the qualifying group expenditure on research and development was so increased.
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(c) Where—
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(i) by virtue of subparagraph (ii) of the definition of ‘threshold amount’, expenditure incurred in the threshold period by a company which is a member of a group of companies is not taken into account in calculating the threshold amount in relation to a relevant period, and
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(ii) at any time during the period of 10 years commencing on the date on which the research and development centre ceased to be used, no company which is a member of the group is carrying on a trade which is within the charge to corporation tax,
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then, in respect of the final accounting period for which a company which is a member of the group is chargeable to corporation tax in respect of its trade, that company shall be charged to tax under Case IV of Schedule D on an amount equal to the aggregate of the amounts by which the qualifying group expenditure on research and development has been increased, as a result of a reduction in the threshold amount by virtue of subparagraph (ii) of the definition of threshold amount, for relevant periods, taking account of each relevant period in respect of which the qualifying group expenditure on research and development was so increased, as reduced by any amount charged to tax in accordance with paragraph (b).”.
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(2) (a) Paragraph (g) of subsection (1) applies to accounting periods commencing on or after 1 January 2010.
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(b) Paragraphs (j) and (k) of subsection (1) apply and have effect from 1 January 2010.
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(c) Except where otherwise provided by paragraphs (a) and (b), subsection (1) applies to relevant periods (within the meaning of section 766 of the Principal Act) commencing on or after 1 January 2010.
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