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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Patent Box: relevant IP profits: routine return figure: deductions that are not routine deductions


Some expenditure that would otherwise be routine deductions by virtue of the six heads defined at S357CJ (CIRD220440) are specifically removed by 357CK.

Head 1 - Loan relationship etc debits

Debits in respect of loan relationships or derivative contracts are not routine deductions.

Head 2 - R&D expenses

R&D expenses are excluded from the calculation. This recognises that these expenses are likely to have a direct correlation to the creation and development of qualifying IP. The R&D expenses excluded are the amounts on which R&D tax credits are given, plus any additional deduction given by the R&D tax credit regime. For externally provided workers (‘EPW’) expenses the amount eligible for relief under CTA09/Part 13 is excluded from the mark up. Therefore where only 65% of the actual cost of EPW is eligible for relief then the non-eligible 35% of the cost should be marked up in the same way that non-R&D EPW expenditure would be.

Head 3 - RDA and patent allowances

Research and development allowances and patent allowances under CAA01/ Part 6 and Part 8 are not routine deductions as they, like R&D expenses, are likely to have a direct correlation to the development of qualifying IP.

Head 4 - R&D employee share acquisitions

Deductions relating to relief given for employee share acquisitions under CTA09/Part 12 are allowable to the extent that the employee is engaged in relevant R&D activities. The same proportion of the staff cost which is eligible for enhancement under CTA09/Part 13 should be applied to the CTA09/Part 12 cost to establish the amount to be excluded from the routine return figure.