Finance Act 2019

Amendment of Chapter 2 of Part 29 of Principal Act (scientific and certain other research)

25. (1) Section 765(1) of the Principal Act is amended—

(a) by substituting the following paragraph for paragraph (a):

“(a) incurs capital expenditure on scientific research—

(i) other than on a building or structure, or

(ii) on any building or structure to the extent only that the construction or development of such building or structure is scientific research,”,

and

(b) in paragraph (c), by deleting “to the inspector”.

(2) Section 766 of the Principal Act is amended—

(a) in subsection (1) —

(i) in paragraph (a) —

(I) in subparagraph (ii) of the definition of “expenditure on research and development”, by deleting “or this Chapter”, and

(II) in subparagraph (ii) of the definition of “relevant period”, by substituting “submitted” for “given to the appropriate inspector”,

(ii) in paragraph (b) —

(I) in subparagraph (v) —

(A) in clause (I), by inserting “or the European Union” after “Member State”,

(B) in clause (II), by substituting “Member State or an institution, office, agency or other body of the European Union, or” for “Member State;”, and

(C) by inserting the following clause after clause (II):

“(III) a state, other than the State or a Member State referred to in clause (I), and any board, authority, institution, office, agency or other body in such state;”,

(II) in subparagraph (vii), by substituting “15” for “5”, and

(III) in subparagraph (viii)(II), by inserting “, in advance of making the payment or on the date the payment is made,” after “notifies that person in writing”,

and

(iii) by inserting the following paragraph after paragraph (b):

“(c) In this Chapter, a ‘relevant micro or small sized company’ means a company which is a micro or small sized enterprise within the meaning of the Annex to Commission Recommendation 2003/361/EC of 6 May 20033 concerning the definition of micro, small and medium-sized enterprises.”,

(b) in subsection (1A)(a), by deleting “or this Chapter”,

(c) in subsection (2) —

(i) by deleting “to the appropriate inspector”, and

(ii) by inserting “, or 30 per cent where that company is a relevant micro or small sized company,” after “25 per cent”,

(d) in subsection (2A)(a), by deleting “to the appropriate inspector”,

(e) in subsection (3)(a), by deleting “to the appropriate inspector”,

(f) in subsection (4B)(b)(i), by substituting “959A” for “950(1) ”, and

(g) in subsection (7B)—

(i) by substituting the following paragraph for paragraph (b):

“(b) (i) Any claim in respect of a specified amount or pursuant to section 766C(4) shall be deemed for the purposes of section 1077E to be a claim in connection with a credit and, for the purposes of determining an amount in accordance with section 1077E(11) or 1077E(12), a reference to an amount of tax that would have been payable for the relevant periods by the person concerned shall be read as if it were a reference to a specified amount or an amount pursuant to section 766C(4).

(ii) Any claim in respect of subsection (4B), section 766A(4B) or pursuant to section 766C(4), as the case may be, that remains unpaid, shall be deemed for the purposes of section 1077E to be a claim in connection with a credit and, for the purposes of determining an amount in accordance with section 1077E(11) or 1077E(12), a reference to an amount of tax that would have been payable for the relevant periods by the person concerned shall be read as if it were a reference to the amount so claimed.”,

(ii) in paragraph (c) —

(I) by substituting the following subparagraph for subparagraph (i):

“(i) Subject to subparagraph (ii), where a company makes a claim in respect of a specified amount or pursuant to section 766C(4) and it is subsequently found that the claim is not as authorised by this section or by section 766A or 766C, as the case may be, then the company may be charged to tax under Case IV of Schedule D for the accounting period in respect of which the payment was made or the amount surrendered, as the case may be, in an amount equal to 4 times so much of—

(I) the specified amount, or

(II) the amount pursuant to section 766C(4),

as is not so authorised.”,

and

(II) by inserting the following subparagraph after paragraph (ii) :

“(iii) An amount chargeable to tax under this paragraph shall be treated—

(I) as income against which no loss, deficit, expense or allowance may be set off, and

(II) as not forming part of the income of the company for the purposes of calculating a surcharge under section 440,

and no claim may be made under subsection (2), (4) or (4A) to reduce the corporation tax arising on an amount chargeable to tax under this paragraph.”,

and

(iii) in paragraph (d), by substituting “an assessment is made” for “an inspector makes an assessment”.

(3) Section 766A(1) of the Principal Act is amended—

(a) in paragraph (a), in the definition of “relevant expenditure”, by deleting “or this Part”, and

(b) in paragraph (b)(i) —

(i) in clause (I), by inserting “or the European Union” after “Member State”,

(ii) in clause (II), by substituting “Member State or an institution, body, office, agency or other body of the European Union, or” for “Member State;”, and

(iii) by inserting the following clause after clause (II):

“(III) a state, other than the State or a Member State referred to in clause (I), and any board, authority, institution, office, agency or other body in such state;”.

(4) Section 766B(3) of the Principal Act is amended—

(a) in paragraph (b)(ii)(II), by substituting “ends, or” for “ends.”, and

(b) by inserting the following paragraph after paragraph (b):

“(c) the aggregate amount of twice the payroll liabilities for each income tax month, within the meaning of section 983, that forms part of the relevant accounting period of a relevant micro or small sized company in which the expenditure is incurred.”.

(5) The Principal Act is amended by inserting the following section after section 766B:

“Tax credit for research and development expenditure for smaller companies

766C. (1) In this section—

‘payroll liabilities’ has the same meaning as in section 766B(1);

‘relevant micro or small sized company’ and ‘expenditure on research and development’ have the same meaning as they have in section 766;

‘tax liability’ means—

(a) in respect of income tax collected under Chapter 4 of Part 42, payroll liabilities, other than those referred to in paragraph (b) of the definition of ‘payroll liabilities’ in section 766B, due and payable in respect of each income tax month, as defined in section 983, and

(b) in respect of tax, within the meaning of section 2 of the Value-Added Tax Consolidation Act 2010 , the amount due and payable for each taxable period within the meaning of section 76 of that Act,

where that income tax month or taxable period, as the case may be, forms part of the accounting period in which the expenditure on research and development was incurred.

(2) This section shall apply to a relevant micro or small sized company which exists for the purposes of carrying on a trade but has not yet commenced to carry on that trade.

(3) (a) In applying this subsection, the definition in section 766(1)(a) of ‘expenditure on research and development’ shall apply as if references to amounts being allowable for tax purposes were references to amounts which would be allowable for tax purposes, if the company had commenced to trade.

(b) Notwithstanding subsection (1)(b)(vi) of section 766, a company to which this section applies may make a claim under subsection (2) of that section in an accounting period prior to commencing to trade, but, subject to subsection (7) of this section, no claim under subsection (2A) or (4B) of the said section 766 may be made in respect of expenditure referred to in paragraph (a).

(4) Where a company makes a claim under subsection (3), and as respects any accounting period of that company, the amount by which the company is entitled to reduce corporation tax of the accounting period exceeds the corporation tax of the company for the accounting period, the company may make a claim to have that excess offset against the company’s tax liability for that accounting period, and where this results in an overpayment of the tax liability for that accounting period then, subject to section 960H, a refund may issue.

(5) Notwithstanding subsection (4), no amount shall be surrendered to a tax liability where the emoluments to which the payroll liabilities relate remain unpaid 3 months after the end of the relevant accounting period.

(6) Any claim under this section shall be made within 12 months from the end of the accounting period in which the expenditure on research and development, giving rise to the claim, is incurred.

(7) Where a company has made a claim under this section and subsequently begins to trade, the expenditure calculated for the purposes of section 766(1)(b)(vi)(I) shall be determined by the formula—

(A - B)

where—

A is equal to the total expenditure calculated for the purposes of section 766(1)(b)(vi)(I), and

B is equal to the amount of tax liabilities reduced under subsection (4) divided by 0.30.”.

(6) (a) This section, subject to paragraphs (b) and (c), applies as respects accounting periods beginning on or after the date of the passing of this Act.

(b) Subsections (2)(c)(ii), (4)(b) and (5) shall come into operation on such day or days as the Minister for Finance may by order or orders appoint and different days may be appointed for different purposes or different provisions.

(c) Subsection (1) and subsections (2)(a)(i)(I) and (b) and (3)(a) shall apply to expenditure incurred on or after 1 January 2020.

3 OJ No. L124, 20.5.2003, p. 36