What is subsidised qualifying expenditure on in-house direct R&D under section 1071?

Under section 1071 of the Corporation Tax Act 2009, subsidised qualifying expenditure on in-house direct R&D is expenditure that would have qualified for normal R&D tax relief but for the fact that it is subsidised. The R&D must be carried out directly by the company itself, not sub-contracted to it by another party.

Can subsidised R&D expenditure still qualify for large company R&D relief in the United Kingdom?

Yes. Section 1071 provides a route by which subsidised expenditure on in-house R&D can still be recognised for relief under the large company R&D scheme. The key requirement is that subsidy must be the only reason the expenditure fails to qualify under the standard R&D relief route, and all other qualifying conditions must be met.

Does section 1071 exclude capital expenditure from qualifying as subsidised in-house R&D?

Section 1071 does not contain an explicit capital expenditure exclusion. This is because the general trading income provisions in Part 3 of the Corporation Tax Act 2009, specifically section 53, already prohibit deductions for expenditure of a capital nature. The capital exclusion therefore applies automatically without needing to be restated.

What is the difference between in-house direct R&D and sub-contracted R&D for section 1071 purposes?

In-house direct R&D means research and development carried out by the company itself. If the R&D work was sub-contracted to the company by another party, it does not count as in-house direct R&D and falls outside section 1071. This distinction ensures only genuinely self-performed R&D qualifies under this provision.

Corporation Tax Act 2009 section 1071

Subsidised qualifying expenditure on in-house direct R&D

Section 1071 defines what counts as "subsidised qualifying expenditure on in-house direct research and development" for the purposes of the large company R&D tax relief scheme.

Expenditure on in-house R&D may still qualify for relief even where it has been subsidised, provided it meets certain conditions.
The expenditure must be the kind that would have qualified for R&D relief were it not for the fact that it is subsidised — in other words, subsidy is the only reason it does not qualify under the normal route.
The expenditure must not relate to R&D activities that have been sub-contracted to the company — it must be genuinely in-house research and development carried out by the company itself.
There is no separate requirement that the expenditure must be revenue rather than capital in nature, because the general trading income rules already prevent a deduction for capital expenditure.

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