Corporation Tax Act 2010 section 357BLB

Qualifying expenditure on relevant R&D undertaken in-house

Section 357BLB defines what counts as qualifying in-house R&D expenditure for the purposes of calculating the R&D fraction within the Patent Box regime, covering the types of spending that qualify, the requirement that the R&D is performed by the company itself, and a special reclassification rule where a foreign permanent establishment exemption applies.

• Qualifying in-house R&D expenditure must be spent on staffing costs, software, data licences, cloud computing services, consumable items, externally provided workers, or payments to clinical trial subjects, and must relate to R&D carried out by the company itself during the relevant period.
• Where a company has elected to exempt the profits or losses of its foreign permanent establishments, expenditure that would otherwise be in-house R&D expenditure is reclassified as expenditure on R&D subcontracted to connected persons, to the extent it feeds into the foreign permanent establishments calculation.
• The R&D must relate to the qualifying IP right by creating, developing or contributing to the invention, developing ways to use or apply it, or developing items or processes that incorporate it.
• The definitions of the qualifying expenditure categories — such as staffing costs, software and consumables, externally provided workers, and clinical trial payments — follow the existing R&D relief definitions in Part 13 of the Corporation Tax Act 2009, adapted so that references to relevant research and development point to R&D connected with the company's qualifying IP rights.