Corporation Tax Act 2009 section 1042E

Qualifying expenditure: payments for contracted out R&D

Section 1042E sets out the conditions that must all be met for a company's payments for contracted out research and development to count as qualifying expenditure under the merged R&D tax relief scheme (Chapter 1A).

• The expenditure must relate to R&D that the company has contracted out to another party — it must be the company's own R&D project that it has outsourced
• The R&D must not have been contracted out to the company by someone else — in other words, the company must be the ultimate principal, not a subcontractor passing work down the chain
• The expenditure must represent the qualifying element of a contractor payment, which is the portion of the payment to the subcontractor that relates to eligible R&D costs (such as staffing, software, data, consumables, and external workers)
• The expenditure must not be attributable to an exempt foreign permanent establishment of the company

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