Corporation Tax Act 2009 section 1045ZA

R&D intensity condition

Section 1045ZA sets out how to determine whether a company meets the R&D intensity condition, which is required for the company to access the enhanced SME R&D relief (additional deductions and deemed trading losses for pre-trading expenditure).

• A company meets the R&D intensity condition if its qualifying R&D expenditure is at least 30% of its total relevant expenditure for the accounting period.
• Where the company is connected with other companies, the 30% test is applied on an aggregate basis across the connected group rather than to the individual company alone.
• Total relevant expenditure broadly includes amounts brought into account in calculating trading profits under GAAP, pre-trading R&D expenditure eligible for deemed trading loss relief, and capitalised expenditure allowed as a deduction under the intangible assets rules.
• Payments or transfers of value between connected companies are excluded from total relevant expenditure to prevent artificial inflation of the figures.