Corporation Tax Act 2009 section 1131

Qualifying expenditure on externally provided workers: other cases

Section 1131 sets out how to calculate qualifying R&D expenditure on externally provided workers where the company and the staff provider are not connected and no election has been made to be treated as connected.

• Where the company, staff provider and any staff controller are not all connected, and no election for connected treatment has been made, the qualifying expenditure is 65% of the staff provision payment attributable to the workers' qualifying earnings.
• The staff provision payment used in the calculation is the gross amount before any deductions required under IR35 or intermediaries legislation (ITEPA 2003 section 61S or the relevant Social Security Contributions Intermediaries Regulations).
• This 65% restriction reflects that, in an arm's length arrangement, the staff provider's profit margin and other overheads are embedded in the payment, and only a portion truly relates to the R&D work performed.
• Where a payment covers both R&D and non-R&D activities, any apportionment must be made on a just and reasonable basis.