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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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R&D tax relief: categories of qualifying expenditure: overview

As is mentioned at CIRD81100 one of the conditions for R&D tax relief being due is that there is qualifying expenditure. When the SME scheme CIRD90000 was first introduced the categories of qualifying expenditure were:

For each category it is only expenditure incurred after the inception of the schemes that can qualify.

Introduction of new category in FA02 - contributions to independent research

With the introduction of the large company scheme CIRD85000 a new category was introduced, contributions to independent research CIRD82200. This is only available to large companies. While staffing costs and consumable stores were the same for large companies qualifying expenditure on subcontracted R&D for large companies was more restricted than for SMEs (CIRD84200).

Introduction of new category in FA03 - expenditure on externally provided workers

A new category of qualifying expenditure for expenditure on externally provided workers was introduced for expenditure incurred after 8 April 2003 for large companies and expenditure incurred after 26 September 2003 for SME companies (CIRD84000).

Changes to categories in FA04 - software and consumable or transformable items

For both the SME scheme and the large companies scheme consumable stores ceased to be a category of qualifying expenditure for expenditure incurred on or after 1 April 2004 and new categories of expenditure on software CIRD82500 and expenditure on consumable or transformable materials CIRD82300 were introduced. As the new consumable items category is wider than its predecessor, anything that qualified as consumable stores previously will still qualify, but the new categories are not retrospective, and so expenditure incurred before they came into force has to be tested against the old rules.

Changes to categories in FA06 - expenditure on clinical trial volunteers

A new category of qualifying expenditure for expenditure on subjects of clinical trials was introduced for expenditure incurred after 1 April 2006 for large companies and expenditure incurred on or after 1 August 2008 for SME companies (CIRD84400).

Payment

Where the underlying legislation requires not only that there be expenditure, but also payment, this means that the amount must actually be paid. While the payment in these circumstances need not have been made by the end of the accounting period in which the expenditure is shown, it must have been made before the claim to R&D tax relief can be valid. This approach does not alter the time limits for making a claim, but it does mean that the claim cannot be accepted before payment is made.

There is a paid requirement in respect of:

Changes consequential to ITEPA03

There were changes in the definition of staffing costs that arose due to amendments of the legislation when ITEPA03 was introduced. The inadvertent change, which applied to accounting periods ending on or after 6 April 2003, was cancelled for any expenditure incurred on or after 1 April 2004 (CIRD83200).