Corporation Tax Act 2010 section 357BLD

Qualifying expenditure on relevant R&D sub-contracted to connected persons

Section 357BLD defines what counts as qualifying expenditure on relevant research and development that a company has sub-contracted to connected persons, for the purposes of calculating the R&D fraction under the Patent Box regime.

• This category of expenditure forms one of the components used in calculating the R&D fraction, which determines the proportion of Patent Box profits eligible for the reduced corporation tax rate.
• It includes two types of expenditure: amounts attributed to the company's foreign permanent establishments under other provisions, and payments made during the relevant period to connected persons for outsourced R&D work.
• A connected person is defined by section 1122 of the Corporation Tax Act 2010 and broadly covers entities under common control or with specified relationships to the company, such as group companies or companies controlled by the same individuals.
• Where a payment to a connected person covers both relevant R&D and other matters, only the portion properly attributable to the R&D work is included — the remainder is excluded from the calculation.