Corporation Tax Act 2009 section 1053

Qualifying expenditure: payments for contracted out R&D

Section 1053 sets out the conditions that must 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 2).

• The expenditure must be attributable to relevant R&D that the company has contracted out to a sub-contractor, rather than R&D that has been contracted out to the company itself by someone else.
• Only the qualifying element of a contractor payment counts — not the full amount paid to the sub-contractor, as specific rules determine what proportion qualifies.
• The expenditure must not be attributable to an exempt foreign permanent establishment of the company.
• Separate rules determine when particular types of expenditure (such as staffing costs, software, data licences, cloud computing, consumable items, and externally provided workers) are treated as attributable to relevant R&D.