Corporation Tax Act 2009 section 1134

Qualifying element of contractor payment: connected persons

Section 1134 sets out how to determine the qualifying element of a contractor payment for R&D tax relief purposes when the company making the payment and the subcontractor receiving it are connected persons.

• Where a company and its subcontractor are connected persons, the qualifying element of the contractor payment is the lower of the full payment or the subcontractor's relevant expenditure.
• Relevant expenditure covers only revenue (not capital) costs incurred by the subcontractor on staffing, software, data licences, cloud computing services, consumable items, payments to clinical trial subjects, or qualifying expenditure on externally provided workers.
• The expenditure must relate to R&D undertaken in the United Kingdom, or to overseas R&D that meets specific conditions for work carried out abroad.
• Both the payment and the subcontractor's relevant expenditure must have been brought into account under generally accepted accounting practice within a relevant period ending no more than 12 months after the company's own accounting period in which the payment was recognised.