Corporation Tax Act 2009 section 1112E

Exception for companies creating or managing intellectual property

Section 1112E provides an exception from the PAYE and NIC cap on R&D tax relief for companies that are actively creating or managing their own intellectual property, provided they meet certain conditions about the nature and staffing of that activity.

• Companies engaged in creating or managing their own intellectual property can be exempted from the PAYE/NIC cap on R&D relief, provided the work is mainly carried out by their own employees.
• Intellectual property is broadly defined and includes patents, trade marks, copyrights, design rights, plant breeder's rights, equivalent overseas rights, and unprotected know-how with economic value.
• The company must also satisfy a spending test: expenditure on connected-party externally provided workers and connected-party subcontractors must not exceed 15% of total qualifying R&D expenditure for the period.
• The Treasury has the power to change the 15% threshold by regulations.

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