Corporation Tax Act 2009 section 1077

Qualifying expenditure on in-house direct R&D

Section 1077 defines what counts as qualifying expenditure on in-house direct research and development, including rules about who can claim when R&D work is subcontracted.

• "In-house direct R&D" means research and development carried out directly by the company itself, rather than contracted out to another party.
• Capital expenditure is excluded from qualifying expenditure, as there is already a general prohibition on deducting capital expenditure when calculating trading income.
• When R&D is subcontracted to a large company by another large company, the subcontractor can claim relief under this chapter, since the commissioning large company cannot claim under this chapter (which requires the company to carry out the R&D itself).
• When R&D is subcontracted by a small or medium-sized enterprise, the SME claims relief under its own scheme (Chapter 2), and the subcontractor large company is prevented from also claiming, avoiding double relief and ensuring the benefit does not leak to income tax payers through reduced pricing.