VRR: qualifying expenditure: on direct R&D
FA02/SCH13/PARA3 - 5, FA00/SCH20/PARA2, PARAS 5, 6, & 8
A qualifying R&D activity is R&D relating to certain specified diseases CIRD76000.
Relevant R&D is R&D:
- related to a trade that a company carries on, or
- from which it is intended that a trade to be carried on by the company will be derived.
R&D related to a trade carried on by a company includes any R&D which may lead to or facilitate an extension of the trade.
Qualifying expenditure on direct R&D is expenditure incurred by a company on:
- staffing costs CIRD83000,
- consumable stores CIRD82450 (for expenditure incurred before 1 April 2004),
- consumable items CIRD82300 (for expenditure incurred on or after 1 April 2004), and
- software CIRD82500 (for expenditure incurred on or after 1 April 2004),
for a qualifying R&D activity directly undertaken by the company and that satisfies the following conditions:
- the qualifying R&D activity must relevant R&D in relation to the company,
- the expenditure must not be capital expenditure and it must not be subsidised,
- the company must not incur the expenditure in carrying out activities contracted out to it by somebody else.
A company’s R&D expenditure is subsidised to the extent that its cost is met by another person. Subsidised expenditure is not excluded from the relief entirely; you calculate the VRR on the amount net of the subsidy. However, if the R&D project is funded even in part by a notified State aid (typically, a government grant) then no VRR is given. (For this purpose only, SME tax relief and SME tax credit are not treated as State aids).