Corporation Tax Act 2009 section 1042L

Treatment of notional tax deduction

Section 1042L explains what happens to the notional tax amount that is deducted when calculating the payable R&D expenditure credit, allowing it to be surrendered within a group or carried forward against future corporation tax.

• This section applies where a notional tax deduction has been made at step 2 of the process for working out the payable R&D expenditure credit under section 1042I.
• If the company belongs to a group, it may surrender all or part of the notional tax amount to another group member for the same accounting period in which the expenditure credit arises.
• Any part of the notional tax amount that is not surrendered to a group company must be carried forward and used to reduce the company's own corporation tax liability in future accounting periods.
• The company cannot receive the notional tax amount as a cash payment — it must either be surrendered within the group or set against the company's own future corporation tax bills.