Corporation Tax Act 2009 section 1089

SMEs: amount of deduction

Section 1089 sets out how to calculate the amount of the tax deduction available to small and medium-sized enterprises (SMEs) claiming research and development expenditure relief as a trading deduction.

• SMEs can claim an enhanced deduction for qualifying R&D expenditure, calculated as a percentage uplift on the amount of qualifying expenditure allocated to an accounting period.
• Pre-trading R&D expenditure is allocated to accounting periods in accordance with generally accepted accounting practice, rather than being treated as incurred when the company starts to trade.
• Where a company is already carrying on one trade and incurs pre-trading R&D expenditure relating to a separate future activity, it can still claim the deduction against the profits of its existing trade.
• The normal rules for allocating pre-trading expenditure to the period when trading begins do not apply; instead, the expenditure is spread across accounting periods as recognised under GAAP.