Corporation Tax Act 2010 section 357CG

Adjustments in calculating profits of trade

Section 357CG sets out the adjustments a company must make to its trading profits when calculating its relevant IP profits under the Patent Box regime, ensuring that financing arrangements and R&D reliefs are treated consistently.

• Loan relationship debits, derivative contract debits, and additional R&D and creative industry deductions must be added back to trading profits, so that these items do not distort the calculation of relevant IP profits.
• R&D expenditure credits, audiovisual or video game expenditure credits, and finance income must be deducted from trading profits, removing the effect of financing methods and certain tax credits from the IP profit calculation.
• Where a company has a shortfall in R&D expenditure during the first four years after electing into the Patent Box, its R&D expenditure figure is increased to reflect research costs incurred before the election whose benefits are now being realised.
• Research and development is defined as activities treated as R&D under generally accepted accounting practice, excluding oil and gas exploration and appraisal.