R&D tax relief: conditions to be satisfied: allowable as a deduction in computing the profit
CTA09/S1044(5) & CTA09/S1063(4)
The statute provides that, to be eligible for relief, expenditure within the qualifying categories must have been allowable as a deduction in computing the profit of the trade for which the R&D is relevant.
Pre trading expenditure
Where expenditure is incurred for the purposes of a trade before that trade commences, the expenditure can generally only be allowed as a deduction in computing the profit as if the expenditure had been incurred on the first day of the trade (CTA09/S61). The exception to this is under the SME scheme and is dealt with at CIRD90200. Pre trading expenditure under the large company scheme is dealt with at CIRD88000.
Deductibility in computing profit of expenditure incurred in an accounting period beginning on or after 1 January 2005
So long as:
- expenditure is recognised either as a deduction in computing the profit or as an intangible asset in accounts beginning on or after 1 January 2005, and
- the expenditure is not prevented from being an allowable deduction in calculation of profit for that period (for example because it is pre trading expenditure for a company within the large company scheme, or because it is capital expenditure for tax purposes) , and
- the expenditure is incurred during the accounting period,
then FA04/S53 (now CTA09/S1308) allows expenditure to be deducted in computing the profit when it is incurred irrespective of whether it appears as a deduction in the profit and loss account.
The same legislation prevents more than one deduction in computing taxable profits for the same expenditure. So where the expenditure is treated as on an asset and relief is claimed at that point, no relief is due for the same expenditure when it is amortised to the profit and loss account. Some explanatory background on the introduction of FA04/S53 (now CTA09/S1308) is at CIRD98400.
Deductibility in computing profit of expenditure incurred in an accounting period beginning before 1 January 2005
In order for expenditure in an accounting period beginning before 1 January 2005 to be allowable as a deduction in computing the profit the expense must reduce the profit in the profit and loss account. This may be the case where:
- revenue expenditure is written off as an expense directly to the profit and loss account, or
- expenditure which is revenue in nature is treated as on an asset, and an amount in respect of amortisation or depreciation is taken to profit and loss account.