Finance Act 2024

• Citation: 2024 c. 3
• Sections: 423

Section 1 Permanent full expensing etc for expenditure on plant or machinery

(1) In section 7 of F(No.2)A 2023 (temporary full expensing etc for expenditure on plant or machinery), in subsection (3), in the inserted section 45S of CAA 2001, in paragraph (a), omit “but before 1 April 2026”.

(2) In consequence of the provision made by subsection (1) —

(a) the amendments made by subsections (2) to (6) of section 7 of F(No.2)A 2023 are instead to operate as textual amendments of Part 2 of CAA 2001, and

(b) accordingly, in subsection (1) of that section, for the words from “has effect” to the end substitute “is amended as follows” , and, in the italic heading inserted by subsection (6) of that section, omit “temporary”.

Section 2 New regime for research and development carried out by companies

Schedule 1 —

(a) replaces the existing scheme for R&D expenditure credit,

(b) amends the existing scheme for R&D relief, and

(c) makes related provision.

Section 3 Films, television programmes and video games produced by companies

Schedule 2 replaces Parts 15 to 15B of CTA 2009 with a new regime for the taxation of companies producing films, television programmes and video games, including relief in the form of payable credits arising from expenditure on production activities.

Section 4 Theatrical productions made by companies

Schedule 3 amends the regime for the taxation of companies producing theatrical productions in Part 15C of CTA 2009.

Section 5 Orchestral concerts produced by companies

Schedule 4 amends the regime for the taxation of companies producing orchestral concerts in Part 15D of CTA 2009.

Section 6 Museum and gallery exhibitions produced by companies

Schedule 5 amends the regime for the taxation of companies producing museum and gallery exhibitions in Part 15E of CTA 2009.

Section 7 Sections 3 to 6 : administration of reliefs

Schedule 6 amends Schedule 18 to FA 1998 (company tax returns etc) in relation to the reliefs introduced or amended by sections 3 to 6 .

Section 8 Miscellaneous amendments relating to REITs

Schedule 7 makes miscellaneous amendments to the corporation tax regime for Real Estate Investment Trusts.

Section 9 Managers of ships

Schedule 8 amends Schedule 22 to FA 2000 to make provision to enable companies, and groups of companies, that manage qualifying ships to make a tonnage tax election (so that their profits for the purposes of corporation tax are calculated in accordance with the tonnage tax regime).

Section 10 Increase in capital allowances limit for ship leasing

(1) Paragraph 94 of Schedule 22 to FA 2000 (tonnage tax: restrictions on capital allowances) is amended as follows.

(2) In sub-paragraph (3), for “£40 million”, in both places it occurs, substitute “£100 million” .

(3) In sub-paragraph (5), for “£80 million” substitute “£200 million” .

(4) The amendments made by subsections (2) and (3) have effect in relation to leases entered into on or after 1 April 2024.

Section 11 Extension of EIS relief and VCT relief to shares issued before 6 April 2035

(1) In—

(a) section 157(1)(aa) of ITA 2007 (which limits EIS relief to shares issued before 6 April 2025), and

(b) section 261(3)(za) of that Act (which limits VCT relief to shares issued before that date),

for “2025” substitute “2035” .

(2) This section comes into force on such day as the Treasury may by regulations appoint.

Section 12 Relief for payments of compensation by government etc to companies

(1) FA 2020 is amended as follows.

(2) After paragraph 5 of Schedule 15 (tax relief for scheme payments) insert—

Corporation tax and other related relief

Introductory

(6) This Part of this Schedule provides for the following—

(a) an exemption from corporation tax for relevant compensation payments, and

(b) an exemption from income tax and capital gains tax for relevant onward payments.

Relevant compensation payments

(7)

(1) In this Part of this Schedule “ relevant compensation payment ” means a payment made to a company under—

(a) the GLO Compensation Scheme,

(b) the Horizon Shortfall Scheme,

(c) the Suspension Remuneration Review,

(d) the Post Office Process Review, or

(e) such other compensation scheme of a description specified in regulations made by the Treasury.

(2) The power under sub-paragraph (1) (e) to specify a description of compensation scheme is exercisable only if the scheme provides for the payment of compensation to persons by or on behalf of—

(a) the government of the United Kingdom,

(b) the government of a part of the United Kingdom,

(c) the government of any other country or territory,

(d) a local or other public authority in the United Kingdom, or

(e) a local or other public authority of a territory outside the United Kingdom.

(3) The power under sub-paragraph (1) (e) may be exercised so as to provide—

(a) for the provisions of this Part of this Schedule to apply to all descriptions of payments made under a compensation scheme or only to such descriptions as may be specified in the regulations;

(b) for all provisions of this Part of this Schedule to apply to payments made under a compensation scheme or only for such provisions to apply as are specified in the regulations.

(4) The power under sub-paragraph (1) (e) must be exercised so as to provide that the reliefs conferred by this Part of this Schedule in respect of the compensation schemes mentioned in sub-paragraph (1)(a) to (d) are also conferred in a corresponding or similar way in respect of other relevant schemes.

(5) The reference in sub-paragraph (4) to “ relevant schemes ” is a reference to any compensation schemes established for the purposes of—

(a) compensating persons affected by the Horizon system, or

(b) compensating persons in respect of other matters identified in High Court judgments given in proceedings relating to the Horizon system.

Relevant onward payments

(8)

(1) For the purposes of this Part of this Schedule a payment is a “relevant onward payment” if or to the extent that—

(a) the payment is made by a company to which a relevant compensation payment was made,

(b) the payment is to an individual and—

(i) the individual is or was a director or employee of the company, or

(ii) the payment is a distribution by the company to shareholders, and

(c) it is reasonable to conclude from the circumstances that the payment is made by the company to the individual for the purpose of passing on all or part of the compensation payment mentioned in paragraph (a) to the individual.

(2) But where sub-paragraph (3) applies to the relevant compensation payment mentioned in sub-paragraph (1)(a), a payment to an individual is a relevant onward payment for the purposes of this Part of this Schedule only so far as it relates to such part of the relevant compensation payment as was made for the purpose of topping up the amount of compensation paid to account for sums lost to tax.

(3) This sub-paragraph applies to a relevant compensation payment—

(a) made (at any time) under the Horizon Shortfall Scheme;

(b) made before 1 January 2024 under the Suspension Remuneration Review.

Exemption from corporation tax

(9)

(1) No liability to corporation tax arises in respect of a relevant compensation payment.

(2) The following are to be ignored for all other corporation tax purposes—

(a) the receipt by a company of a relevant compensation payment;

(b) the making by a company of a relevant onward payment.

(3) This paragraph has effect—

(a) in the case of relevant compensation payments falling within paragraph 7 (1)(a), (b), (c) or (d), whenever the payments are received;

(b) in the case of relevant compensation payments falling within paragraph 7 (1)(e), where the payments are received on or after such date as is specified in the regulations concerned;

(c) in the case of relevant onward payments that relate to paragraph 7 (1)(a), (b), (c) or (d), whenever the payments are made;

(d) in the case of relevant onward payments that relate to paragraph 7 (1)(e), where the payments are made on or after such date as is specified in the regulations concerned.

(4) The date specified in regulations as mentioned in sub-paragraph (3)(b) and (d) may be a date before the regulations are made.

Exemption from income tax and capital gains tax

(10)

(1) Paragraph 3(1) and (2) (exemption from income tax) applies to a relevant onward payment as it applies to a qualifying payment.

(2) Paragraph 4(1) and (2) (exemption from capital gains tax) applies to a relevant onward payment as it applies to a qualifying payment.

(3) Sub-paragraph (1) has effect—

(a) in the case of relevant onward payments that relate to paragraph 7 (1)(a), (b), (c) or (d), whenever the payments are received;

(b) in the case of relevant onward payments that relate to paragraph 7 (1)(e), where the payments are received on or after such date as is specified in the regulations concerned.

(4) Sub-paragraph (2) has effect—

(a) in the case of relevant onward payments that relate to paragraph 7 (1)(a), (b), (c) or (d), in relation to disposals whenever made;

(b) in the case of relevant onward payments that relate to paragraph 7 (1)(e), in relation to disposals made on or after such date as is specified in the regulations concerned.

(5) The date specified in regulations as mentioned in sub-paragraph (3)(b) and (4)(b) may be a date before the regulations are made.

Power to make further provision

(11)

(1) The Treasury may by regulations make provision for the purpose of providing relief from corporation tax, income tax or capital gains tax in relation to the receipt of payments made under compensation schemes that is supplementary or incidental to provision contained in this Part of this Schedule.

(2) Provision under this paragraph may (among other things)—

(a) make different provision for different compensation schemes;

(b) make provision having retrospective effect.

Regulations: general

(12)

(1) A power to make regulations under this Part of this Schedule is exercisable by statutory instrument.

(2) A statutory instrument containing regulations under this Part of this Schedule is subject to annulment in pursuance of a resolution of the House of Commons.

Interpretation

(13)

(1) In this Part of this Schedule—

“ GLO Compensation Scheme ” means the scheme announced by His Majesty’s Government on 22 March 2022 with the objective of ensuring that persons who were party to a claim against Post Office Limited in respect of the Horizon system that was subject to a group litigation order have access to compensation for losses related to that system;

“ Horizon Shortfall Scheme ” means the scheme established on 1 May 2020 by Post Office Limited to compensate persons who were adversely affected by accounting shortfalls related to the Horizon system;

“ the Horizon system ” means previous versions of the computer system used by Post Office Limited known as Horizon (and sometimes referred to as Legacy Horizon, Horizon Online or HNG-X);

“ Post Office Limited ” means the private company limited by shares with the company number 02154540 whose registered office is 100 Wood Street, London EC2V 7ER;

“ Post Office Process Review ” means the review established by Post Office Limited to provide redress to postmasters who were financially impacted by previous processes or policies in relation to balance discrepancies unrelated to the Horizon system;

“ Suspension Remuneration Review ” means the review established by Post Office Limited to provide redress to postmasters contracted to deliver Post Office services through branches who were suspended before March 2019 and did not receive remuneration during their period of suspension.

(2) For the purposes of this Part of this Schedule—

(a) a relevant onward payment “relates” to paragraph 7 (1)(a) if the related relevant compensation payment mentioned in paragraph 8 (1)(c) falls within paragraph 7 (1)(a) (and references to payments relating to paragraph 7 (1)(b), (c), (d) or (e) are to be read accordingly);

(b) references to a compensation scheme include references to any arrangements for the making of payments of compensation.

(3) In consequence of the amendment made by subsection (2)—

(a) in section 102—

(i) omit “and” after paragraph (b), and

(ii) after that paragraph insert—

(ba) payments made under or otherwise referable to compensation schemes established in connection with certain matters relating to Post Office Limited, and

(b) before paragraph 1 of Schedule 15 (and the italic heading before it) insert—

Income tax and other related relief

(c) in each of the following provisions of Schedule 15, before “Schedule” insert “Part of this” —

(i) paragraph 1(1);

(ii) paragraph 1(2);

(iii) paragraph 2(6).”

Section 13 Enterprise management incentives: time limits

(1) Part 7 of Schedule 5 to ITEPA 2003 (enterprise management incentives: notification of options) is amended as follows.

(2) In paragraph 44(1) (time within which notice of options must be given to HMRC) for “within 92 days after the date of the grant of the option” substitute “on or before 6 July following the end of the tax year in which the option was granted” .

(3) In paragraph 46(5) (time for giving of notices of enquiry)—

(a) for “end of the period of 92 days” substitute “date” ;

(b) for “period within” substitute “date by” .

(4) The amendments made by this section have effect in relation to share options (within the meaning of the EMI code (see paragraph 59 of Schedule 5 to ITEPA 2003)) granted on or after 6 April 2024.

Section 14 Provision in connection with abolition of the lifetime allowance charge

(1) Schedule 9 contains amendments in consequence of, or otherwise in connection with, the provision made by sections 18, 19 and 23 of F(No.2)A 2023 (which relate to the abolition of the lifetime allowance charge).

(2) In that Schedule—

(a) Part 1 contains repeals of the provisions of Part 4 of FA 2004 (pension schemes etc) that impose the lifetime allowance charge, and amendments relating to those repeals;

(b) Part 2 contains amendments of Part 4 of FA 2004, Part 9 of ITEPA 2003, and subordinate legislation, relating to the taxation of lump sums paid by registered pension schemes;

(c) Part 3 contains amendments of Part 4 of FA 2004, Part 9 of ITEPA 2003, and subordinate legislation, relating to the taxation of lump sums paid by certain unregistered non-UK pension schemes and to the overseas transfer charge;

(d) Part 4 contains amendments of provisions that confer transitional protections in relation to the introduction of the lifetime allowance charge or reductions in the amount of the lifetime allowance;

(e) Part 5 contains amendments of Part 4 of FA 2004 and subordinate legislation relating to the provision of information;

(f) Part 6 contains provision about commencement and transitional matters, and powers to make further provision.

(3) The following provisions of F(No.2)A 2023 (which are superseded by the amendments contained in Parts 1 and 2 of Schedule 9 ) are repealed—

section 18 (abolition of lifetime allowance charge);

section 19 (certain lump sums to be taxed at marginal rate).

(4) The amendments contained in Schedule 9 include repeals of provisions that are spent or are no longer of practical utility.

Section 15 MPs’ pension scheme etc: rectification of discrimination

(1) The Treasury may by regulations make provision about the treatment for the purposes of income tax or capital gains tax of—

(a) rectification payments, or tax redress payments, made to or in respect of a member of a relevant pension scheme,

(b) tax windfalls resulting from a rectification exercise, or

(c) increases or decreases resulting from a rectification exercise in—

(i) the rate of a scheme pension payable by a relevant pension scheme, or

(ii) the value of any rights under a relevant pension scheme in respect of a member.

(2) “ Relevant pension scheme ” means—

(a) an MPs’ pension scheme,

(b) a Senedd pension scheme, or

(c) an Assembly pension scheme.

(3) “ Rectification payment ” means—

(a) a payment of pension benefits that—

(i) are payable as a result of a rectification exercise, and

(ii) would have become payable at an earlier time if the rectification exercise had been retrospective, or

(b) a refund of pension contributions that is owed as a result of a rectification exercise.

(4) “ Tax redress payment ” means a payment made to or in respect of a member of a relevant pension scheme where—

(a) the member was subject to a rectification exercise, and

(b) the payment represents compensation for an amount paid in respect of an income tax liability for any tax year that would not have arisen if the rectification exercise had been retrospective.

(5) “ Tax windfall ”, in relation to a rectification exercise and a member of a relevant pension scheme, means—

(a) a liability of the member for the annual allowance charge that would have arisen in the tax year 2023-24 or any earlier tax year, or

(b) a liability of the member for the lifetime allowance charge that would have arisen in the tax year 2022-23 or any earlier tax year,

if the rectification exercise had been retrospective.

(6) “ Rectification exercise ” means an exercise, conducted by a relevant pension scheme in accordance with the rules of the scheme, under which the benefits payable to or in respect of a member in respect of the member’s remediable service (or any part of the member’s remediable service)—

(a) cease to be career average benefits and become instead final salary benefits, or

(b) cease to be final salary benefits and become instead career average benefits.

(7) Regulations under this section may—

(a) modify any enactment contained in the Income Tax Acts or relating to capital gains tax;

(b) impose a charge to income tax in relation to a tax windfall;

(c) make different provision for different cases;

(d) include consequential, incidental, supplemental, transitional, transitory or saving provision.

(8) Regulations under this section—

(a) if made before 6 April 2025, may be made so as to have effect in relation to the tax year 2024-25;

(b) if made on or after 6 April 2025, may include provision that has effect in relation to times before the regulations are made if that provision does not increase any person’s liability to tax.

(9) In this section—

“ an Assembly pension scheme ” means a pension scheme made under section 48 of the Northern Ireland Act 1998;

“ lifetime allowance charge ” means the charge to income tax under section 214 of FA 2004, as it had effect before its repeal by this Act;

“ modify ” includes disapply or supplement;

“ an MPs’ pension scheme ” means a pension scheme made under paragraph 12(1) of Schedule 6 to the Constitutional Reform and Governance Act 2010;

“ remediable service ” means service that is pensionable service under a relevant pension scheme and—

in the case of service that is pensionable service under an MPs’ pension scheme, takes place in the period beginning with 8 May 2015 and ending with 31 March 2023;

in the case of service that is pensionable service under a Senedd pension scheme or an Assembly pension scheme, takes place in the period beginning with 6 May 2016 and ending with 6 May 2021;

“ scheme pension ” has the same meaning as in Part 4 of FA 2004 (pensions etc);

“ a Senedd pension scheme ” means a pension scheme made under section 20 of the Government of Wales Act 2006.

Section 16 Provision relating to the cash basis

Schedule 10 contains provision about the calculation of the profits of a trade, profession or vocation on the cash basis, including provision—

(a) for the cash basis to be the default basis of calculation for certain persons,

(b) removing eligibility conditions relating to receipts,

(c) removing restrictions on deductions for loan interest, and

(d) removing restrictions on the availability of certain loss reliefs.

Section 17 PAYE regulations: special types of payer or payee

(1) In Chapter 3 of Part 11 of ITEPA 2003 (pay as you earn: special types of payer or payee), after section 688AA insert—

Workers’ providing services through intermediaries etc: cases where taxes already paid

(688AB)

(1) PAYE regulations may make the following provision.

(2) Provision for an amount to be treated as having been recovered from the payee, and for that amount not to be recoverable from the payer (“the deemed employer”), where—

(a) the deemed employer would otherwise be liable to pay an amount under PAYE regulations in consequence of being treated under section 61N(3) as having made a deemed direct payment to a worker (other than by virtue of section 61WA), and

(b) an amount of income tax or corporation tax has already been paid, or assessed, in respect of income referable to that payment.

(3) Provision for the amount referred to in the opening words of subsection (2) to be the best estimate which can reasonably be made by an officer of Revenue and Customs (whether generally or specifically) of the amount referred to in subsection (2) (b) .

(4) Provision preventing a person specified in PAYE regulations from—

(a) making a claim for the repayment of, or relief in respect of, an amount referred to in subsection (2) (b) , or

(b) deducting, or setting off, the amount referred to in that subsection from, or against, any tax liability of the person,

in a case where an estimate of that amount is treated as having been recovered from the payee as a result of provision made by virtue of this section.

(5) In this section, “ payee ” and “ payer ” have the same meaning as in section 684 (see subsection (7C) of that section).

(2) PAYE Regulations made by virtue of subsection (1) may make provision in relation to deemed direct payments made on or after 6 April 2017.

Section 18 Carer’s allowance supplement: correction of statutory reference

(1) In Table A in section 660 of ITEPA 2003 (taxable UK benefits), in the entry for carer’s allowance supplement, for “Sections 24 and 28” substitute “Section 81” .

(2) The amendment made by subsection (1) is treated as having had effect from the time when section 12 of FA 2019 (tax treatment of social security income) came into force.

Section 19 Growth market exemption: qualifying UK multilateral trading facilities etc

(1) Section 99A of FA 1986 (meaning of “recognised growth market” etc) is amended as follows.

(2) In subsection (5)—

(a) in the words before paragraph (a), after “recognised stock exchange” insert “or a qualifying UK multilateral trading facility” ;

(b) in paragraph (a), for “£170 million” substitute “£450 million” .

(3) In subsection (6), at the end insert

;

“ UK multilateral trading facility ” has the meaning given by Article 2.1.14A of Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments as it forms part of assimilated law.

(4) After subsection (6) insert—

(6A) For the purposes of subsection (5) a UK multilateral trading facility is “qualifying” if—

(a) it is operated by an investment firm within the meaning given by article 3(1) of The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ( S.I. 2001/544 ), and

(b) the investment firm has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity (within the meaning of that Act) of operating a multilateral trading facility.

(5) The amendments made by this section are treated as having come into force on 1 January 2024.

Section 20 Capital-raising arrangements etc

Schedule 11 makes provision for and in connection with ensuring that it continues to be the case that—

(a) no 1.5% charge to stamp duty or stamp duty reserve tax arises in relation to—

(i) issues of securities or stock, or

(ii) transfers of securities made in the course of capital-raising arrangements or qualifying listing arrangements, and

(b) no charge to stamp duty arises in relation to the issue of bearer instruments.

Section 21 New investment exemption

(1) Part 5 of F(No.2)A 2023 (electricity generator levy) is amended as follows.

(2) In section 280 (key concepts), in subsection (1), in the definition of “ relevant ” (as in relevant generating station)—

(a) omit the “and” after paragraph (a), and

(b) after paragraph (b) insert

, and

(c) to the extent it is not comprised of qualifying new generating plant (see section 311A );

(3) After section 311 insert—

Meaning of “qualifying new generating plant”

(311A)

(1) Generating plant is “qualifying new generating plant” if it is new generating plant commissioned as part of a qualifying project that meets the new investment condition.

(2) The new investment condition is met in relation to a qualifying project if on 21 November 2023 it was reasonable to conclude, having regard to all of the circumstances, that there is a significant likelihood of the project not proceeding.

(3) The Treasury may by regulations provide for cases in which qualifying projects are to be treated as meeting the new investment condition.

(4) “ Qualifying project ” means a project to commission—

(a) new generating plant for—

(i) a new generating station, or

(ii) an existing generating station which (as a result of the project) is to be wholly or substantially comprised of new generating plant, or

(b) new generating plant that increases the generating capacity of an existing generating station.

(5) Subsection (6) applies where new generating plant that increases the generating capacity of an existing generating station replaces existing generating plant.

(6) Only so much of the new generating plant as represents generating capacity in excess of the capacity of the generating plant it replaces is to be regarded as qualifying new generating plant.

(4) In section 313 (definitions in this Part), in the table, at the appropriate place insert—

Section 22 Ensuring consistency of Parts 3 and 4 of F(No.2)A 2023 with OECD rules etc

Schedule 12 makes amendments to F(No.2)A 2023 in relation to multinational top-up tax and in relation to domestic top-up tax.

Section 23 Rates of tobacco products duty

(1) In Schedule 1 to TPDA 1979 (table of rates of tobacco products duty), for the Table substitute—

TABLE

An amount equal to the higher of—

16.5% of the retail price plus £316.70 per thousand cigarettes, or

£422.80 per thousand cigarettes.

(2) In consequence of the provision made by subsection (1) , in Schedule 2 to the Travellers’ Allowances Order 1994 (which provides in certain circumstances for a simplified calculation of excise duty on goods brought into Great Britain)—

(a) in the entry relating to cigarettes, for “£393.45” substitute “£422.80” ,

(b) in the entry relating to hand rolling tobacco, for “£351.03” substitute “£412.32” ,

(c) in the entry relating to other smoking tobacco and chewing tobacco, for “£161.62” substitute “£173.68” ,

(d) in the entry relating to cigars, for “£367.61” substitute “£395.03” ,

(e) in the entry relating to cigarillos, for “£367.61” substitute “£395.03” , and

(f) in the entry relating to tobacco for heating, for “£90.88” substitute “£97.66” .

(3) The amendments made by this section are treated as having come into force at 6pm on 22 November 2023.

Section 24 Rates of vehicle excise duty

(1) Schedule 1 to VERA 1994 (annual rates of vehicle excise duty) is amended as follows.

(2) In paragraph 1 (general rate)—

(a) in sub-paragraph (2) (vehicle not covered elsewhere in Schedule with engine cylinder capacity exceeding 1,549cc), for “£325” substitute “£345” , and

(b) in sub-paragraph (2A) (vehicle not covered elsewhere in Schedule with engine cylinder capacity not exceeding 1,549cc), for “£200” substitute “£210” .

(3) In paragraph 1B (graduated rates for light passenger vehicles registered before 1 April 2017), for the Table substitute—

(4) In the sentence immediately following the Table in that paragraph, for paragraphs (a) and (b) substitute—

(a) in column (3), in the last two rows, “405” were substituted for “700” and “725”, and

(b) in column (4), in the last two rows, “415” were substituted for “710” and “735”.

(5) In paragraph 1GC (graduated rates for first licence for light passenger vehicles registered on or after 1 April 2017), for Table 1 (vehicles other than higher rate diesel vehicles) substitute—

(6) In that paragraph, for Table 2 (higher rate diesel vehicles) substitute—

(7) In paragraph 1GD(1) (rates for any other licence for light passenger vehicles registered on or after 1 April 2017)—

(a) in paragraph (a) (reduced rate), for “£170” substitute “£180” , and

(b) in paragraph (b) (standard rate), for “£180” substitute “£190” .

(8) In paragraph 1GE(2) (rates for light passenger vehicles registered on or after 1 April 2017 with a price exceeding £40,000)—

(a) in paragraph (a), for “£560” substitute “£590” , and

(b) in paragraph (b), for “£570” substitute “£600” .

(9) In paragraph 1J(a) (rates for light goods vehicles that are not pre-2007 or post-2008 lower emission vans), for “£320” substitute “£335” .

(10) In paragraph 2(1) (rates for motorcycles)—

(a) in paragraph (a) (engine cylinder capacity not exceeding 150cc), for “£24” substitute “£25” ,

(b) in paragraph (b) (motorbicycles with engine cylinder capacity exceeding 150cc but not exceeding 400cc), for “£52” substitute “£55” ,

(c) in paragraph (c) (motorbicycles with engine cylinder capacity exceeding 400cc but not exceeding 600cc), for “£80” substitute “£84” , and

(d) in paragraph (d) (other cases), for “£111” substitute “£117” .

(11) The amendments made by this section have effect in relation to licences taken out on or after 1 April 2024.

Section 25 Rates of air passenger duty

(1) Section 30 of FA 1994 (air passenger duty: rates) is amended as follows.

(2) In subsection (1B) (journeys ending in the United Kingdom)—

(a) in paragraph (a), for “£6.50” substitute “£7” , and

(b) in paragraph (b), for “£13” substitute “£14” .

(3) In subsection (2A) (long-haul journeys)—

(a) in paragraph (a), for “£87” substitute “£88” , and

(b) in paragraph (b), for “£191” substitute “£194” .

(4) In subsection (4A) (ultra-long haul journeys)—

(a) in paragraph (a), for “£91” substitute “£92” , and

(b) in paragraph (b), for “£200” substitute “£202” .

(5) In subsection (4E) (journeys on aircraft equipped to carry fewer than 19 passengers)—

(a) in paragraph (aa), for “£574” substitute “£581” , and

(b) in paragraph (d), for “£601” substitute “£607” .

(6) The amendments made by this section have effect in relation to the carriage of passengers beginning on or after 1 April 2024.

Section 26 Rebate on heavy oil and certain bioblends used for heating

In Schedule 1A to HODA 1979 (excepted machines), in paragraph 8, in sub-paragraph (1)(e), for the words from “kerosene” to the end substitute “for fuel—

(i) heavy oil other than gas oil, or

(ii) bioblend other than bioblend that is a mixture of biodiesel and gas oil.

Section 27 Vehicle excise duty exemption for foreign vehicles

After section 5 of VERA 1994 (exempt vehicles) insert—

Additional power to exempt foreign vehicles

(5A)

(1) The Secretary of State may by regulations confer an exemption from vehicle excise duty in respect of a foreign vehicle.

(2) The regulations may, for or in connection with conferring the exemption, amend subordinate legislation made under this Act or the Motor Vehicles (International Circulation) Act 1952.

(3) The regulations may provide that the exemption of a foreign vehicle from vehicle excise duty is—

(a) subject to conditions;

(b) limited to a specified period.

(4) Regulations under this section may make—

(a) provision which applies generally or for particular purposes;

(b) retrospective provision.

(5) A provision of regulations under this section that has the effect of removing the exemption of a foreign vehicle from vehicle excise duty must not be made so as to have retrospective effect.

(6) In this section—

“ foreign vehicle ” means a vehicle that is registered under the law of any territory outside the United Kingdom;

“ specified ” means specified in the regulations;

“ subordinate legislation ” means Orders in Council, orders and regulations (including any regulations made under an Order in Council).

Section 28 Interpretation of VAT and excise law

(1) This section makes provision about how—

(a) the European Union (Withdrawal) Act 2018 (“EUWA 2018”), and

(b) the amendments made to that Act by the Retained EU Law (Revocation and Reform) Act 2023 (“REULA 2023”),

are to apply for the purpose of interpreting enactments relating to value added tax or any duty of excise ( “VAT and excise law” ).

(2) Section 4 of EUWA 2018 (retained EU rights, powers, liabilities etc) continues to have effect (despite the provision made by section 2 of REULA 2023) for the purpose of interpreting VAT and excise law subject to the following exception.

(3) The exception is that Articles 110 and 111 of the Treaty on the Functioning of the European Union (which relate to internal taxation on products) have no effect for that purpose.

(4) Section 5(A1) to (A3) of EUWA 2018 (which are inserted by section 3 of REULA 2023 and which abolish the supremacy of EU law) have effect in relation to VAT and excise law as they have effect in relation to other domestic enactments but only so far as they relate to the disapplication or quashing of any enactment as a result of EU law (and, accordingly, the superseded provisions continue to have effect for the purpose of interpreting VAT and excise law).

(5) Retained general principles of EU law—

(a) continue to be relevant (despite the provision made by section 4 of REULA 2023) for the purpose of interpreting VAT and excise law in the same way, and to the same extent, as they were relevant for that purpose before the coming into force of that section, but

(b) otherwise have effect for that purpose subject to the provision made by that Act (including, in particular, the amendments made by section 6 of that Act (role of courts)).

(6) In this section —

(a) the reference to any duty of excise is to be read in accordance with section 49 of TCTA 2018,

(b) the reference to the superseded provisions is a reference to section 5(1) to (3) of EUWA 2018 as those subsections had effect immediately before the passing of REULA 2023, and

(c) the reference to retained general principles of EU law is to be read in accordance with EUWA 2018 as that Act had effect immediately before the passing of REULA 2023.

(7) This section needs to be read with sections 42 and 47 of TCTA 2018 (which make other provision about EU law relating to VAT and excise law and which continue to have effect for the purpose mentioned in subsection (1) above).

(8) This section is treated as having come into force on 1 January 2024.

Section 29 Rates of landfill tax

(1) Section 42 of FA 1996 (amount of landfill tax) is amended as follows.

(2) In subsection (1)(a) (standard rate), for “£102.10” substitute “£103.70” .

(3) In subsection (2) (reduced rate for certain disposals), in the words after paragraph (b)—

(a) for “£102.10” substitute “£103.70” , and

(b) for “£3.25” substitute “£3.30” .

(4) The amendments made by this section have effect in relation to disposals made (or treated as made) on or after 1 April 2024.

Section 30 Rate of aggregates levy

(1) In section 16(4) of FA 2001 (rate of aggregates levy), for “£2” substitute “£2.03” .

(2) The amendment made by this section has effect in relation to aggregate subjected to commercial exploitation on or after 1 April 2024.

Section 31 Rate of plastic packaging tax

(1) In section 45(1) of FA 2021 (rate of plastic packaging tax), for “£210.82” substitute “£217.85” .

(2) The amendment made by this section has effect in relation to packaging components produced in, or imported into, the United Kingdom on or after 1 April 2024.

Section 32 Increase in maximum terms of imprisonment for tax offences

(1) In the specified provisions of the following enactments, for “ seven ” (or “7”) substitute “14” —

(2) Subsections (3) to (5) make amendments to CEMA 1979 which are consequential on amendments to that Act made by subsection (1) .

(3) In section 50—

(a) in subsection (4) for “, (5AA), (5B) or (5C)” substitute “or (5B)” ,

(b) in subsection (5A) for “ 7 ” (in the closing words) substitute “14” ,

(c) omit subsection (5AA),

(d) in subsection (5B)(b) for “7” substitute “14” , and

(e) omit subsection (5C).

(4) In section 68—

(a) in subsection (3) for “, (4A), (4AA) or (4B)” substitute “or (4A)” ,

(b) in subsection (4A) for “ 7 ” (in the closing words) substitute “14” ,

(c) omit subsection (4AA), and

(d) omit subsection (4B).

(5) In section 170—

(a) in subsection (3) for “, (4AA), (4B) or (4C)” substitute “or (4B)” ,

(b) in subsection (4A) for “ 7 ” (in the closing words) substitute “14” ,

(c) omit subsection (4AA),

(d) in subsection (4B)(b) for “7” substitute “14” , and

(e) omit subsection (4C).

(6) Subject to subsection (7) , the amendments made by this section have effect in relation to offences committed on or after the day on which this Act is passed.

(7) The amendment made to section 14F of HODA 1979 so far as applying to a part of the United Kingdom other than Northern Ireland—

(a) comes into force at the same time as paragraph 9 of Schedule 11 to FA 2020 (which inserts a new section 14F into HODA 1979) comes into force in its application to that part of the United Kingdom, and

(b) has effect in relation to offences committed on or after the day on which it comes into force.

Section 33 Disqualification of directors etc promoting tax avoidance schemes

Schedule 13 makes provision for HMRC to apply for disqualification orders under the Company Directors Disqualification Act 1986 in connection with the promotion of tax avoidance schemes.

Section 34 Promoters of tax avoidance: failure to comply with stop notice etc

(1) In FA 2014, before section 278 (but after the italic heading) insert—

Offences relating to stop notices

(277A)

(1) A person who, without reasonable excuse, fails to comply with a duty imposed under section 236B(1) is guilty of an offence.

(2) The recipient of a stop notice (“ R ”) is guilty of an offence if—

(a) R fails, without reasonable excuse, to comply with a duty imposed under section 236B(3)(a), (4)(a) or (5)(a) to give a copy of the notice to another person (“ P ”),

(b) P subsequently fails to comply with a duty imposed under section 236B(1) in relation to the notice, and

(c) at the time of P’s failure the stop notice continues to have effect in relation to R.

(3) For the purposes of this section—

(a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person's control,

(b) if the person relies on any other person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure,

(c) if the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased, and

(d) reliance on legal advice is to be taken automatically not to constitute a reasonable excuse where the person is a monitored promoter if either—

(i) the advice was not based on a full and accurate description of the facts, or

(ii) the conclusions in the advice that the person relied on were unreasonable.

Liability for offences under section 277A committed by a body

(277B)

(1) If an offence under section 277A is committed by a body corporate or a partnership and—

(a) is committed with the consent or connivance of a relevant person in relation to the body or partnership, or

(b) is attributable to neglect on the part of such a person,

the person (as well as the body or partnership) commits the offence and is liable to be proceeded against and punished accordingly.

(2) A “relevant person” is—

(a) in relation to a body corporate other than one whose affairs are managed by its members—

(i) a director, manager, secretary or other similar officer of the body, or a person purporting to act in such a capacity, or

(ii) a shadow director within the meaning of section 251 of the Companies Act 2006;

(b) in relation to a limited liability partnership or other body corporate whose affairs are managed by its members—

(i) a member who exercises functions of management with respect to it, or a person purporting to act in such a capacity, or

(ii) in the case of a limited liability partnership, a shadow member within the meaning of regulation 2 of the Limited Liability Partnerships Regulations 2001 ( S.I. 2001/1090 );

(c) in relation to a partnership, a partner or a person purporting to act in such a capacity.

(2) In section 280(1) of FA 2014 (penalties for offences), after “section” insert “ 277A ,” .

(3) The offence under section 277A (1) of FA 2014 (as inserted by subsection (1)) applies in relation to a failure to comply that occurs on or after the date on which this Act is passed.

(4) The offence under section 277A (2) of FA 2014 (as inserted by subsection (1)) applies in relation to duties under section 236B(3)(a), (4)(a) or (5)(a) arising on or after the date on which this Act is passed.

(5) In section 236B(7) of FA 2014 (effect of stop notices), for “(5)(b)” substitute “(5)(a)” .

Section 35 Construction industry scheme: gross payment status

(1) FA 2004 is amended as follows.

(2) In section 66 (cancellation of registration for gross payment)—

(a) in subsection (1)—

(i) in paragraph (b), after “sub-contractor)” insert “in connection with an obligation arising” ;

(ii) in paragraph (c), for “any such provision” substitute “an obligation arising under or in connection with any provision of this Chapter or of regulations made under it” .

(b) in subsection (3)—

(i) for paragraph (b) substitute—

(b) has fraudulently made an incorrect return or has fraudulently provided incorrect information (whether as a contractor or a sub-contractor) in connection with an obligation—

(i) arising under any provision of this Chapter or of regulations made under it;

(ii) arising under any provision of PAYE regulations;

(iii) to submit a self-assessment return;

(iv) arising under any provision of the Value Added Tax Act 1994 or of regulations made under it, or

(ii) in paragraph (c), for “any such provision” substitute “an obligation arising under or in connection with any provision of this Chapter or of regulations made under it” .

(3) In Schedule 11 (conditions for registration for gross payment)—

(a) in paragraph 4, in sub-paragraph (1)(a)—

(i) in sub-paragraph (iii), for “the PAYE Regulations ( SI 2003/2682 )” substitute “PAYE regulations” ;

(ii) at the end insert—

(v) to account for or pay VAT as required by or under the Value Added Tax Act 1994, and

(b) in paragraph 8, in sub-paragraph (1)(a)—

(i) in sub-paragraph (iii), for “the PAYE Regulations ( SI 2003/2682 )” substitute “PAYE regulations” ;

(ii) at the end insert—

(v) to account for or pay VAT as required by or under the Value Added Tax Act 1994, and

(c) in paragraph 12, in sub-paragraph (1)(a)—

(i) in sub-paragraph (iii), for “the PAYE Regulations ( SI 2003/2682 )” substitute “PAYE regulations” ;

(ii) at the end insert—

(v) to account for or pay VAT as required by or under the Value Added Tax Act 1994, and

(4) The amendments in this section have effect in relation to—

(a) applications for gross payment status made on or after 6 April 2024, and

(b) registrations for gross payment status which are in effect on or after 6 April 2024 (but see subsection (5) ).

(5) When making a determination under section 66(1)(a) of FA 2004 (cancellation of registration for gross payment) in relation to a person registered for gross payment status before 6 April 2024, any failure by that person before 6 April 2024 to comply with an obligation to account for or pay VAT must be disregarded (notwithstanding the amendments made by subsection (3) ).

Section 36 Additional information to be contained in returns under TMA 1970 etc

(1) In section 8 of TMA 1970 (personal return), after subsection (1H) insert—

(1I) Where a person is required to make and deliver a return under this section, the person may be required by an officer of His Majesty’s Revenue and Customs to include in the return any information that is specified or described in regulations made by the Commissioners (whether or not the information is relevant for the purpose mentioned in subsection (1)).

(1J) The Commissioners may only specify or describe information in regulations under subsection (1I) if the Commissioners consider that the information is relevant for the purpose of the collection and management of any of the taxes listed in section 1.

(1K) A person who fails to comply with a requirement imposed on them by virtue of subsection (1I) is liable to a penalty of £60.

(1L) Regulations under subsection (1I) may make different provision for different purposes.

(2) In section 8A of TMA 1970 (trustee’s return), after subsection (1F) insert—

(1G) Where a person is required to make and deliver a return under this section, the person may be required by an officer of His Majesty’s Revenue and Customs to include in the return any information that is specified or described in regulations made by the Commissioners (whether or not the information is relevant for the purpose mentioned in subsection (1)).

(1H) The Commissioners may only specify or describe information in regulations under subsection (1G) if the Commissioners consider that the information is relevant for the purpose of the collection and management of any of the taxes listed in section 1.

(1I) A person who fails to comply with a requirement imposed on them by virtue of subsection (1G) is liable to a penalty of £60.

(1J) Regulations under subsection (1G) may make different provision for different purposes.

(3) In section 12AA of TMA 1970 (partnership return), after subsection (5E) insert—

(5F) Where a person is required to make and deliver a return under this section, the person may be required by an officer of His Majesty’s Revenue and Customs to include in the return any information that is specified or described in regulations made by the Commissioners (whether or not the information is relevant for the purpose mentioned in subsection (1)).

(5G) The Commissioners may only specify or describe information in regulations under subsection (5F) if the Commissioners consider that the information is relevant for the purpose of the collection and management of any of the taxes listed in section 1.

(5H) A person who fails to comply with a requirement imposed on them by virtue of subsection (5F) is liable to a penalty of £60.

(5I) Regulations under subsection (5F) may make different provision for different purposes.

(4) In Chapter 6 of Part 11 of ITEPA 2003 (pay as you earn), before section 708 insert—

Provision of additional information to His Majesty’s Revenue and Customs

(707A)

(1) PAYE regulations may include provision requiring an employer to provide any information that is specified or described in regulations made by the Commissioners (whether or not that information is also relevant to the assessment, charge, collection and recovery of income tax in respect of PAYE income).

(2) The Commissioners for His Majesty’s Revenue and Customs may only specify or describe information in regulations under subsection (1) if the Commissioners consider that the information is relevant for the purpose of the collection and management of any of the taxes listed in section 1 of TMA 1970.

(5) The amendments made by this section have effect for the tax year 2025-26 and subsequent tax years.

Section 37 Commencement of rules imposing penalties for failure to make returns etc

(1) Regulations made by the Treasury under any of the powers in sections 116, 117 or 118 of FA 2021 may provide for any provision of Schedules 24 to 27 to that Act (penalties for failure to make returns etc or pay tax) to come into force for the purposes of failures by eligible volunteers.

(2) An eligible volunteer is an individual in respect of whom an election has effect under the regulations.

(3) The regulations may in particular—

(a) provide for an election to take effect only if accepted by an officer of Revenue and Customs;

(b) provide that an election may not be revoked by the individual;

(c) provide that an election ceases to have effect upon an officer of Revenue and Customs giving notice to the individual;

(d) make provision about the consequences of an election ceasing to have effect.

(4) The provision that may be made by virtue of subsection (3) (d) includes provision for an election that ceases to have effect to be treated as never having had effect, other than for the purposes of any failure in respect of which His Majesty’s Revenue and Customs have already assessed a penalty.

Section 38 Abbreviations used in Act

In this Act the following abbreviations are references to the following Acts—

Section 39 Short title

This Act may be cited as the Finance Act 2024.

Section 1

CTA 2009 is amended as follows.

Section 2

In Part 3, omit Chapter 6A (R&D expenditure credit).

Section 3

In the heading of Part 13, omit “Additional relief for”.

Section 4

(1) Chapter 1 of Part 13 is amended as follows.

(2) For section 1039 (overview of Part) substitute—

Overview of Part

(1039)

(1) This Part provides relief for companies that invest in research and development.

(2) Chapter 1A makes relief available in the form of a credit in respect of expenditure on research and development, which becomes payable in certain circumstances.

(3) Chapter 2 makes alternative relief available, in the form of—

(a) an additional deduction in calculating trading profits, and

(b) a payable credit,

to small or medium-sized enterprises that invest heavily in research and development and do not make associated trading profits.

(4) Chapter 8 limits the reliefs provided by Chapters 1A and 2.

(5) Chapter 9 contains definitions and other supplementary provision.

(3) For section 1040 (relief to be available under more than one Chapter of Part 13) substitute—

No overlapping claims under Chapters 1A and 2

(1040) A company is not entitled to relief under Chapter 2 in respect of expenditure if it is entitled to, and claims, relief under Chapter 1A in respect of that expenditure.

(4) Omit section 1040A (which refers to the existing R&D expenditure credit).

Section 5

After Chapter 1 of Part 13 insert—

R&D expenditure credit

Introductory

Overview of Chapter

(1042A)

(1) This Chapter provides an entitlement to a credit (called an “R&D expenditure credit”) in respect of certain expenditure on research and development.

(2) Section 1042B and 1042C make the basic provision setting out what the entitlement is and how it is to be realised.

(3) Sections 1042D to 1042F describe the expenditure by reference to which the entitlement arises.

(4) Section 1042G sets the percentage of that expenditure that is translated into the credit.

(5) Sections 1042H to 1042N make provision about what happens when a company obtains the credit (in particular, about how the credit is to be accounted for and applied or paid).

(6) Section 1042O makes provision about how the expenditure credit operates in the context of a basic life assurance and general annuity business carried on by an insurance company.

(7) This Chapter has to be read with Chapter 8, which limits the entitlement given by this Chapter in various respects.

Entitlement and claims

Entitlement to credit

(1042B)

(1) A company is entitled to an R&D expenditure credit for an accounting period if it meets conditions A, B and C in this section.

(2) Condition A is that the company carries on a trade in the period.

(3) Condition B is that the company incurs expenditure that is both—

(a) allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period, and

(b) qualifying Chapter 1A expenditure by virtue of section 1042D , 1042E or 1042F .

(4) Condition C is that the company is not an ineligible company (see section 1142).

(5) The amount of the credit is the relevant percentage (see section 1042G ) of the expenditure that satisfies condition B.

Claiming the credit

(1042C)

(1) To obtain an R&D expenditure credit the company must make a claim (see Part 9A of Schedule 18 to the FA 1998).

(2) A company may not make the claim (“the RDEC claim”) after the end of the claim notification period unless—

(a) the company has made an R&D claim during the period of three years ending with the last day of the claim notification period,

(b) the company makes a claim notification in respect of the RDEC claim within the claim notification period, or

(c) the accounting period in respect of which the RDEC claim is made falls within the same period of account as another accounting period in respect of which the company has made an R&D claim or a claim notification.

(3) For the purposes of subsection (2) (a) , ignore any R&D claim for an accounting period beginning before 1 April 2023 that is included in the company’s company tax return only by virtue of an amendment made on or after that date (see paragraph 83B(2) of Schedule 18 to FA 1998).

Qualifying expenditure

Qualifying expenditure: in-house R&D

(1042D)

(1) Expenditure of a company is qualifying Chapter 1A expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development undertaken by the company itself.

(3) Condition B is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software, data licences, cloud computing services or consumable items (see section 1125),

(c) qualifying expenditure on externally provided workers (see section 1127), or

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(4) Condition C is that the research and development is not contracted out to the company (see section 1133 ).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B ).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when expenditure within subsection (3) (a) , (b) or (c) is attributable to relevant research and development.

Qualifying expenditure: payments for contracted out R&D

(1042E)

(1) Expenditure of a company is qualifying Chapter 1A expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development contracted out by the company (see section 1133 ).

(3) Condition B is that the research and development is not also contracted out to the company (see section 1133 ).

(4) Condition C is that the expenditure is incurred in making the qualifying element of a contractor payment (see sections 1133 to 1136).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B ).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Qualifying expenditure: activity as contractor for irrelievable client

(1042F)

(1) Expenditure of a company is qualifying Chapter 1A expenditure if it meets conditions A, B and C in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development contracted out to the company (see section 1133 ).

(3) Condition B is that subsection (4) is satisfied by each person by whom the research and development is contracted out to the company.

(4) A person satisfies this subsection if—

(a) the person is an ineligible company (see section 1142), or

(b) the person is not, in relation to the contracting out of the research and development by that person, acting in the course of a trade, profession or vocation within the charge to tax.

(5) Condition C is that the expenditure would, but for the fact that the research and development is contracted out to the company, be qualifying Chapter 1A expenditure by virtue of section 1042D or 1042E .

Rate of credit

Percentage of qualifying expenditure translated into credit

(1042G)

(1) The relevant percentage for the purposes of section 1042B (5) is—

(a) 49%, in the case of a ring fence trade within the meaning given by section 277 of CTA 2010, or

(b) 20%, in any other case.

(2) The Treasury may by regulations replace the percentage for the time being specified in subsection (1) (a) or (b) with a different percentage.

Treatment of credit: main provisions

Expenditure credit to count as taxable receipt

(1042H) If a company is entitled to, and claims, an R&D expenditure credit for an accounting period, it must bring the amount of the credit into account as a receipt in calculating for corporation tax purposes the profits for the period of the trade concerned.

Redemption of value of expenditure credit

(1042I) If a company is entitled to, and claims, an R&D expenditure credit for an accounting period, the credit is to be dealt with as follows.

Step 1

The amount of the credit is to be applied in discharging any liability of the company to pay corporation tax for the accounting period.

Step 2

If there is a notional tax deduction (see section 1042K ), it is to be applied to any amount remaining after step 1.

Step 3

If the amount remaining after step 2 exceeds the cap by reference to the company’s PAYE and NIC liabilities for the accounting period (see section 1112B ), the excess is to be deducted.

Step 4

Any amount remaining after step 3 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period.

Step 5

If the company is a member of a group, it may surrender the whole or part of any amount remaining after step 4 to any other member of the group (as to which see section 1042N ).

Step 6

Any amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners for His Majesty’s Revenue and Customs—

under or by virtue of an enactment, or

under an agreement made in connection with any person’s liability to make a payment to the Commissioners under or by virtue of an enactment.

Step 7

Any amount remaining after step 6 is (subject to sections 1112F and 1112H ) to be paid to the company by an officer of Revenue and Customs.

Treatment of deduction to comply with PAYE and NIC limit

(1042J)

(1) This section applies if an amount is deducted under step 3 in section 1042I .

(2) The amount is to be added to the amount of R&D expenditure credit to which the company is entitled for its next accounting period (including where that amount would otherwise be nil).

Notional tax deduction

Amount of notional tax deduction

(1042K)

(1) This section determines the amount of the notional tax deduction for the purposes of step 2 in section 1042I .

(2) The amount of the deduction is the amount (if any) by which the amount remaining after step 1 in section 1042I exceeds the amount produced by deducting the notional tax charge from the initial amount of the expenditure credit (that is, its amount before the application of that step).

(3) Subsections (4) and (5) apply if the trade concerned is not a ring fence trade.

(4) The notional tax charge is the amount of corporation tax that would be chargeable on the initial amount of the expenditure credit if it were an amount of profits for the accounting period on which corporation tax was chargeable at the applicable rate.

(5) The applicable rate is—

(a) the main rate, if the company has profits for the accounting period that—

(i) are chargeable to corporation tax at the main rate, and

(ii) would be so even if they did not include any amount brought into account under section 1042H ;

(b) in any other case, the standard small profits rate.

(6) Subsections (7) and (8) apply if the trade concerned is a ring fence trade.

(7) The notional tax charge is the sum of—

(a) the amount of corporation tax that would be chargeable on the initial amount of the expenditure credit if it were an amount of ring fence profits for the accounting period on which corporation tax was chargeable at the applicable rate, and

(b) the amount of the supplementary charge that would be chargeable on the initial amount of the expenditure credit if it were an amount of adjusted ring fence profits for the accounting period (see Chapters 6 to 9 of Part 8 of CTA 2010).

(8) The applicable rate is—

(a) the main ring fence profits rate, if the company has profits for the accounting period that—

(i) are chargeable to corporation tax at the main ring fence profits rate, and

(ii) would be so even if they did not include any amount brought into account under section 1042H ;

(b) in any other case, the small ring fence profits rate.

(9) For the purposes of this section, the initial amount of an expenditure credit is to be treated as excluding any amount added under section 1042J .

(10) In this section—

“ adjusted ring fence profits ” has the meaning given by section 330(2) of CTA 2010;

“ main rate ” means the rate referred to in section 3(1) of CTA 2010;

“ main ring fence profits rate ” means the rate referred to in section 279A(1) of CTA 2010;

“ ring fence profits ” has the meaning given by section 276 of CTA 2010;

“ ring fence trade ” has the meaning given by section 277 of CTA 2010;

“ small ring fence profits rate ” means the rate referred to in section 279A(3) of CTA 2010;

“ standard small profits rate ” means the rate referred to in section 18A(1) of CTA 2010.

Treatment of notional tax deduction

(1042L)

(1) This section applies if an amount is deducted under step 2 in section 1042I .

(2) If the company is a member of a group, it may, in respect of the accounting period in which the expenditure credit arises, surrender the whole or part of the deducted amount to any other member of the group (as to which see section 1042N ).

(3) To the extent that the deducted amount is not surrendered under subsection (2) , it is to be applied in discharging any liability of the company to pay corporation tax for any subsequent accounting period.

Priority of discharge

(1042M)

(1) An amount within subsection (2) is to be applied as described in that subsection before any amount within subsection (3) is applied as described in that subsection.

(2) An amount is within this subsection if it is to be applied under—

(a) section 1042L (3) , or

(b) section 1042N (3) as it applies in relation to an amount surrendered under section 1042L (2) ,

in discharging the liability of a company to pay corporation tax for an accounting period.

(3) An amount is within this subsection if it is to be (or would but for subsection (1) be) applied under—

(a) step 4 in section 1042I , or

(b) section 1042N (3) as it applies in relation to an amount surrendered under step 5 in section 1042I ,

in discharging the same liability as an amount within subsection (2) .

Intra-group surrenders

Amounts surrendered to other group companies

(1042N)

(1) Subsection (3) applies if an amount of expenditure credit is surrendered by the qualifying company to another member of its group under step 5 in section 1042I or under section 1042L (2) .

(2) For the purposes of that subsection—

(a) the accounting period in respect of which the surrender is made is “the surrender AP”;

(b) an accounting period of the other group member is an “overlapping AP” if it overlaps with the surrender AP to any extent.

(3) The surrendered amount is to be dealt with as follows.

Step 1

Select an overlapping AP.

Step 2

Calculate the proportion of the overlapping AP that overlaps with the surrender AP, and apply that proportion to the amount of corporation tax payable by the other group member for that overlapping AP.

Step 3

Calculate the proportion of the surrender AP that overlaps with the overlapping AP, and apply that proportion to the surrendered amount.

Step 4

The amount given by step 3 is to be applied in discharging the liability of the other group member to pay the corporation tax mentioned in step 2, up to the amount given by that step.

Step 5

Select another overlapping AP, if there is one, and repeat steps 2 to 4.

Step 6

If any of the surrendered amount remains after steps 2 to 4 have been taken in relation to each overlapping AP, the remainder is to be treated for the purposes of section 1042I or (as the case may be) section 1042L (2) as if it had not been surrendered as mentioned in subsection (1) .

(4) A surrender to which subsection (3) applies is not to be—

(a) taken into account in determining, for corporation tax purposes, the profits or losses of the qualifying company or the other group member, or

(b) regarded for corporation tax purposes as the making of a distribution.

Basic life assurance and general annuity businesses

Adaptation of entitlement for certain insurance businesses

(1042O)

(1) This section applies if—

(a) for an accounting period, an insurance company is charged to tax in respect of its basic life assurance and general annuity business in accordance with the I-E rules, and

(b) the calculation of the company’s charge to tax for the period in respect of that business does not involve the calculation of any BLAGAB trade profit or loss of the company.

(2) The reference in section 1042B (3) (a) to expenditure that is allowable as a deduction in calculating the profits of the trade for an accounting period is to be read as a reference to expenditure that would be so allowable if the company were to calculate its BLAGAB trade profit or loss for the period.

(3) The reference in section 1042H to calculating the profits of the trade is to be read as a reference to calculating the I-E profit of the basic life assurance and general annuity business carried on by the company.

(4) Any receipt to be brought into account by virtue of this section is to be treated for the purposes of section 92 of FA 2012 (certain BLAGAB trading receipts to count as deemed I-E receipts) as if it had been taken into account in calculating the company’s BLAGAB trade profit or loss for the period.

(5) In this section, “BLAGAB trade profit” and “BLAGAB trade loss” have the meanings given by section 136 of FA 2012.

Section 6

(1) Chapter 2 of Part 13 (relief for SMEs on the cost of R&D) is amended as follows.

(2) For the heading substitute “Relief for loss-making, R&D-intensive SMEs” .

(3) For section 1043 (overview of Chapter) substitute—

Overview of Chapter

(1043)

(1) This Chapter provides relief for companies that are small or medium-sized enterprises, invest heavily in research and development, and do not make associated trading profits.

(2) Section 1044 provides relief in the form of an additional deduction where the investment is made in the course of a loss-making trade.

(3) Section 1045 provides relief in the form of a deemed trading loss where the investment is made the course of activities that do not yet amount to the carrying on of a trade.

(4) Section 1045ZA specifies the intensity of spending on research and development needed for a company to qualify for relief under section 1044 or 1045.

(5) Sections 1047 and 1048 make provision about the procedure for claiming, and the effect of, relief under section 1045.

(6) Section 1049 restricts consortium relief where relief under section 1044 or 1045 is claimed.

(7) Sections 1051 to 1053 describe the expenditure by reference to which the entitlement to relief under section 1044 or 1045 arises.

(8) Sections 1054 to 1062 provide further relief in the form of a payable credit (called an “R&D tax credit”) in respect of trading losses increased or generated by relief under section 1044 or 1045.

(9) Section 1062A excludes certain insurance companies.

(10) This Chapter has to be read with Chapter 8, which limits the entitlements given by this Chapter in various respects.

(4) In section 1044 (additional deduction for trading companies)—

(a) in subsection (1), for “D” substitute “F” ;

(b) after subsection (2) insert—

(2A) Condition B is that the company—

(a) meets the R&D intensity condition in the period, or

(b) obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.

(c) after subsection (5) insert—

(5A) Condition E is that the company makes a loss in the trade in the period.

(5B) Condition F is that the company is not an ineligible company (see section 1142).

(d) in subsection (6)—

(i) at the end of the first sentence insert “(see Part 9A of Schedule 18 to the FA 1998, and also sections 1045A and 1112F )” ;

(ii) omit the second sentence;

(e) in subsection (7), at the end insert—

The deduction is, in particular, additional to any given under section 87.

(f) omit subsection (9).

(5) In section 1045 (deemed trading loss for non-trading companies)—

(a) in subsection (1), for “conditions A and C” substitute “each of conditions A to D” .

(b) after subsection (2) insert—

(2A) Condition B is that the company—

(a) meets the R&D intensity condition in the period, or

(b) obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period.

(c) after subsection (4) insert—

(4A) Condition D is that the company is not an ineligible company (see section 1142).

(d) in subsection (5)—

(i) at the end of the first sentence insert “(see section 1047, and also section 1112F )” ;

(ii) omit the second sentence;

(e) omit subsection (9).

(6) After section 1045 insert—

R&D intensity condition

(1045ZA)

(1) This section determines whether a company meets the R&D intensity condition in an accounting period for the purposes of sections 1044 and 1045.

(2) If the company is not connected with another company, the company meets the condition if its relevant R&D expenditure for the period amounts to at least 30% of its total relevant expenditure for the period.

(3) If the company is connected with at least one other company, the company meets the condition if the connected companies’ relevant R&D expenditure for the period amounts to at least 30% of the connected companies’ total relevant expenditure for the period.

(4) In subsection (3) , “ the connected companies ” refers to the company to which this section is being applied and each company with which it is connected; and the references to their expenditure are to the aggregate of each of their expenditures.

(5) Expenditure forms part of a company’s total relevant expenditure for an accounting period if—

(a) in accordance with generally accepted accounting practice, it is brought into account in calculating the profits for the period of any trade carried on by the company,

(b) it is expenditure in respect of which the company is, for the period, entitled to relief under section 1045, or

(c) in reliance on section 1308(2) (expenditure brought into account in determining value of intangible asset allowable as a deduction), it is brought into account in calculating the company’s profits for the period for corporation tax purposes.

(6) But—

(a) expenditure of a company is to be ignored for the purposes of subsection (5) if it consists of a payment, or other transfer of value, to another company with which the company is connected, and

(b) where expenditure forms part of a company's total relevant expenditure by virtue of subsection (5) (c) , a deduction brought into account as mentioned in subsection (5) (a) is to be ignored for the purposes of that provision to the extent that a corresponding deduction for corporation tax purposes is prevented by section 1308(5).

(7) Expenditure forms part of a company’s relevant R&D expenditure for an accounting period if—

(a) it forms part of the company’s total relevant expenditure for the period, or would do but for subsection (6) (a) , and

(b) it is expenditure in respect of which the company would, assuming that it met the R&D intensity condition, be entitled to relief under this Chapter for the period.

(8) For the purposes of this section in its application to an accounting period, a company is to be treated as connected with another company if it is connected with that company on any day within the period.

(7) Omit section 1046 (relief only available to going concerns).

(8) In section 1051 (meaning of “ qualifying Chapter 2 expenditure ”), for the words from “means” to the end substitute “is such of its expenditure as is qualifying Chapter 2 expenditure by virtue of section 1052 , 1053 or 1053A .”

(9) For sections 1052 and 1053 (categories of qualifying Chapter 2 expenditure) substitute—

Qualifying expenditure: in-house R&D

(1052)

(1) Expenditure of a company is qualifying Chapter 2 expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development undertaken by the company itself.

(3) Condition B is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software, data licences, cloud computing services or consumable items (see section 1125),

(c) qualifying expenditure on externally provided workers (see section 1127), or

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(4) Condition C is that the research and development is not contracted out to the company (see section 1133 ).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B ).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when expenditure within subsection (3) (a) , (b) or (c) is attributable to relevant research and development.

Qualifying expenditure: payments for contracted out R&D

(1053)

(1) Expenditure of a company is qualifying Chapter 2 expenditure if it meets each of conditions A to D in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development contracted out by the company (see section 1133 ).

(3) Condition B is that the research and development is not also contracted out to the company (see section 1133 ).

(4) Condition C is that the expenditure is incurred in making the qualifying element of a contractor payment (see sections 1133 to 1136).

(5) Condition D is that the expenditure is not attributable to an exempt foreign permanent establishment (see section 1138B ).

(6) See sections 1124, 1126 to 1126B and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Qualifying expenditure: activity as contractor for irrelievable client

(1053A)

(1) Expenditure of a company is qualifying Chapter 2 expenditure if it meets conditions A, B and C in this section.

(2) Condition A is that the expenditure is attributable to relevant research and development contracted out to the company (see section 1133 ).

(3) Condition B is that subsection (4) is satisfied by each person by whom the research and development is contracted out to the company.

(4) A person satisfies this subsection if—

(a) the person is an ineligible company (see section 1142), or

(b) the person is not, in relation to the contracting out of the research and development by that person, acting in the course of a trade, profession or vocation within the charge to tax.

(5) Condition C is that the expenditure would, but for the fact that the research and development is contracted out to the company, be qualifying Chapter 2 expenditure by virtue of section 1052 or 1053 .

(10) In section 1054 (entitlement to R&D tax credit)—

(a) in subsection (2)—

(i) at the end of the first sentence insert “(see Part 9A of Schedule 18 to the FA 1998, and also sections 1054A and 1112F )” ;

(ii) omit the second sentence;

(b) in subsection (4), for “1060” substitute “ 1112H ” ;

(c) omit subsection (5).

(11) Omit section 1057 (R&D tax credit only available to going concerns).

(12) In section 1058 (amount of R&D tax credit)—

(a) in subsection (1)—

(i) in paragraph (a), for “10%” substitute “14.5%” ;

(ii) for paragraph (aa) substitute—

(aa) the amount of the cap by reference to the company’s PAYE and NIC liabilities for the accounting period (see section 1112B ).

(b) omit subsections (1A) to (1C);

(c) in subsection (2), omit paragraphs (b) and (c);

(d) omit subsection (3).

(13) Omit sections 1058A to 1058D (provision in relation to PAYE and NIC liabilities).

(14) In section 1060 (payment of R&D tax credit)—

(a) for the heading substitute “Use of credit to pay corporation tax” ;

(b) omit subsections (4) to (7).

(15) After section 1062 insert—

Insurance company to be treated as large company

(1062A) An insurance company that carries on life assurance business in an accounting period is not to be treated for the purposes of this Chapter as a small or medium-sized enterprise in relation to that period.

Section 7

Omit Chapter 6 of Part 13 (further provision about Chapters 2 to 5).

Section 8

For Chapter 8 of Part 13 (cap on aid for R&D) substitute—

Restrictions on relief under this Part

Introductory

Overview of Chapter

(1112A)

(1) This Chapter limits the entitlements given by Chapters 1A and 2.

(2) Sections 1112B to 1112E provide for the amount of R&D expenditure credit or R&D tax credit payable to a company to be capped by reference to certain liabilities of the company in connection with PAYE and national insurance, except in certain cases.

(3) Sections 1112F and 1112G provide that payment of an R&D expenditure credit, and relief under Chapter 2, are available only to companies that are going concerns.

(4) Section 1112H provides that an R&D expenditure credit or R&D tax credit does not have to be paid if a tax enquiry into the company is open or the company has outstanding PAYE or national insurance liabilities.

(5) Section 1112I provides for transactions aimed at obtaining or increasing an entitlement under Chapter 1A or 2 not to succeed in doing so.

(6) Section 1112J allows the Treasury to place additional limits on the amount of relief available under Chapter 2.

PAYE and NIC liabilities

Cap by reference to PAYE and NIC liabilities

(1112B)

(1) This section determines, for the purposes of sections 1042I and 1058(1), the amount of the cap by reference to a company’s PAYE and NIC liabilities for an accounting period.

But see section 1112E (which provides for there to be no cap in certain cases).

(2) The amount of the cap is the sum of—

(a) £20,000, and

(b) the amount produced by multiplying by three (“the multiplier”) the amount of the company’s relevant PAYE and NIC liabilities for payment periods ending in the accounting period (see section 1112C ).

(3) If the accounting period is less than 12 months, the amount specified in subsection (2) (a) is to be proportionately reduced.

(4) If the company claims relief under both Chapters 1A and 2 for the period, the amount of the cap for the purposes of section 1042I is to be reduced by the amount of any R&D tax credit obtained by the company under Chapter 2.

(5) The Treasury may by regulations—

(a) replace the amount for the time being specified in subsection (2) (a) with a different amount;

(b) replace the multiplier for the time being specified in subsection (2) (b) with a different multiplier.

Calculation of relevant PAYE and NIC liabilities

(1112C)

(1) This section determines the amount of a company’s relevant PAYE and NIC liabilities for a payment period for the purposes of section 1112B .

(2) The amount is to be calculated as follows.

Step 1

Take the total amount of the company’s PAYE and NIC liabilities for the payment period (see section 1112D ).

Step 2

Add any amount produced by the application of subsection (4) or (6) to the company as company A.

Step 3

Deduct any amount produced by the application of subsection (4) or (6) to the company as company B.

(3) An amount is produced by subsection (4) where—

(a) two companies (“ company A ” and “ company B ”) are connected,

(b) company A incurs expenditure in the payment period on externally provided workers (see sections 1127 and 1128), and

(c) company B incurs staffing costs in the payment period in providing any of those workers for company A.

(4) The amount produced is the sum of the amounts given, in relation to each worker in respect of whom subsection (3) (c) is satisfied, by—

where—

X is the amount of expenditure that—

has been incurred on staffing costs by company B in providing the worker for company A, and

forms part of the total amount of company B’s PAYE and NIC liabilities for the payment period (see section 1112D ),

Y is the amount of company A’s expenditure on the externally provided worker that has been taken into account in calculating the amount of company A’s qualifying expenditure for the payment period, and

Z is the total amount of company A’s qualifying expenditure on the externally provided worker (see section 1127) for the payment period.

(5) Subsection (6) produces an amount where—

(a) two companies (“ company A ” and “ company B ”) are connected,

(b) company A incurs qualifying contractor expenditure in the payment period, and

(c) company B incurs staffing costs in the payment period in undertaking on behalf of company A any of the research and development to which that expenditure is attributable.

(6) That amount is such amount of those staffing costs as forms part of the total amount of company B’s PAYE and NIC liabilities for the payment period (see section 1112D ).

(7) In this section as it applies for the purposes of section 1042I —

“ qualifying expenditure ” (except in the expression “ qualifying expenditure on the externally provided worker ”) means expenditure that is qualifying Chapter 1A expenditure by virtue of section 1042D , 1042E or 1042F ;

“ qualifying contractor expenditure ” means expenditure that is qualifying Chapter 1A expenditure by virtue of—

section 1042E , or

section 1042F as it applies by reference to section 1042E .

(8) In this section as it applies for the purposes of section 1058(1)—

“ qualifying expenditure ” (except in the expression “ qualifying expenditure on the externally provided worker ”) means qualifying Chapter 2 expenditure (see section 1051);

“ qualifying contractor expenditure ” means qualifying expenditure that is qualifying Chapter 2 expenditure by virtue of—

section 1053 , or

section 1053A as it applies by reference to section 1053 .

Total PAYE and NIC liabilities

(1112D)

(1) For the purposes of section 1112C , the total amount of a company’s PAYE and NIC liabilities for a payment period is the sum of amount A and amount B.

(2) Amount A is the total amount of income tax for which the company is required to account to an officer of Revenue and Customs under PAYE regulations for the period.

(3) In calculating amount A, any deduction the company is authorised to make in respect of child tax credit or working tax credit is to be disregarded.

(4) Amount B is the total amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the accounting period.

(5) In calculating amount B, any deduction the company is authorised to make in respect of any of the following is to be disregarded—

(a) statutory maternity pay,

(b) statutory adoption pay,

(c) statutory paternity pay,

(d) statutory shared parental pay,

(e) statutory parental bereavement pay;

(f) child tax credit, or

(g) working tax credit.

(6) Subsection (7) applies if—

(a) in determining under section 1112C the amount of a company’s relevant PAYE and NIC liabilities for a payment period, it is necessary to determine the total amount of another company’s PAYE and NIC liabilities for that period, and

(b) that period falls within, but is shorter than, a payment period of that other company.

(7) The amount produced by subsection (1) in its application to that other company is to be proportionately reduced.

Exception for companies creating or managing intellectual property

(1112E)

(1) There is no cap by reference to a company’s PAYE and NIC liabilities for an accounting period if the company meets conditions A and B.

(2) A company meets condition A for an accounting period if, during the period, the company is engaged in—

(a) taking, or preparing to take, steps in order that relevant intellectual property will be created by it,

(b) creating relevant intellectual property, or

(c) performing a significant amount of management activity in relation to relevant intellectual property it holds.

(3) For the purposes of subsection (2) —

(a) a company is only engaged in an activity mentioned in paragraph (a) , (b) or (c) of subsection (2) if the activity is wholly or mainly undertaken by employees of the company;

(b) intellectual property is “relevant” intellectual property in relation to a company if the whole or the greater part (in terms of value) of it is created by the company;

(c) intellectual property is created by a company if it is created in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).

(4) For the purposes of this section—

“ intellectual property ” means—

any patent, trade mark, registered design, copyright, design right or plant breeder’s right,

any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a), or

any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value;

“ management activity ”, in relation to intellectual property, means formulating plans and making decisions in relation to the development or exploitation of the intellectual property.

(5) A company meets condition B for an accounting period if the amount (if any) given by subsection (6) does not exceed 15% of the company’s qualifying expenditure for the period.

(6) The amount given by this subsection is the sum of the following incurred by the company in the period—

(a) qualifying expenditure on externally provided workers (see section 1127), where the company, the staff provider and (if different) the staff controller (or staff controllers)—

(i) are all connected, or

(ii) have jointly elected (under section 1130) that section 1129 is to apply to them as if they were all connected;

(b) qualifying contractor expenditure, where the company and the contractor—

(i) are connected, or

(ii) have jointly elected (under section 1135) that section 1134 is to apply to them as if they were connected.

(7) In subsection (6) (b) , “qualifying contractor expenditure” has whichever of the meanings given by 1112C (7) corresponds to the purpose for which this section is being applied.

(8) The Treasury may by regulations replace the percentage for the time being specified in subsection (5) with a different percentage.

Going concerns

Restriction of credit and relief to companies that are going concerns

(1112F)

(1) Subsection (2) applies if a company makes a claim under section 1042C (claims for R&D expenditure credit) at a time when it is not a going concern.

(2) No amount is to be paid to the company at step 7 in section 1042I as a result of the claim.

(3) Subsection (2) ceases to apply (and the company accordingly becomes entitled to be paid) if the company becomes a going concern on or before the last day on which it would be entitled to amend the claim in accordance with paragraph 83E of Schedule 18 to FA 1998.

(4) A company may not make—

(a) a claim under section 1044 (R&D relief by way of additional deduction),

(b) an election under section 1045 (R&D relief by way of deemed trading loss), or

(c) a claim under section 1054 (R&D tax credit),

at a time when it is not a going concern.

(5) If a company ceases to be a going concern after making a claim under section 1054, it is treated as if it had not made the claim (and accordingly there is treated as having been no payment of R&D tax credit to carry interest under section 826 of ICTA).

(6) Subsection (5) does not apply so far as the claim relates to an amount that was paid or applied before the company ceased to be a going concern.

Meaning of “going concern”

(1112G)

(1) For the purposes of section 1112F , a company is a going concern if—

(a) its latest published accounts were prepared on a going concern basis, and

(b) nothing in those accounts indicates that they were prepared on that basis only because of an entitlement or expected entitlement to a credit or relief under this Part.

(2) But a company is not a going concern if it is in administration or liquidation.

(3) For the purposes of this section, a company is in administration if—

(a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 ( S.I. 1989/2405 (N.I. 19)) , or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(4) For the purposes of this section, a company is in liquidation if—

(a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(5) If—

(a) a company transfers its trade and research and development to another company that is a member of the same group, and

(b) only by reason of that transfer, the company’s accounts for the period of account in which the transfer took place are not prepared on a going concern basis,

the accounts are to be treated for the purposes of this section as if they were prepared on a going concern basis.

(6) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Outstanding tax matters

No credit payable if certain tax matters outstanding

(1112H)

(1) This section applies in relation to an amount that a company would, but for this section, be entitled to be paid—

(a) at step 7 in section 1042I (payment of R&D expenditure credit not applied for other purposes), or

(b) under section 1054 (payment of R&D tax credit).

(2) If the company’s tax return for the accounting period in question is enquired into by an officer of Revenue or Customs—

(a) the amount does not have to be paid to the company, but

(b) an officer of Revenue and Customs may make a payment on a provisional basis of such amount as the officer thinks fit.

(3) If the company has outstanding PAYE or NIC liabilities for the accounting period in question, the amount does not have to be paid to the company.

(4) For the purposes of subsection (3) , a company has outstanding PAYE or NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay—

(a) under PAYE regulations, or

(b) in respect of Class 1 national insurance contributions,

for payment periods ending in the accounting period.

Artificially inflated claims

Transactions aimed at obtaining credit or relief to be disregarded

(1112I)

(1) To the extent that a transaction is attributable to arrangements entered into for a disqualifying purpose, it is to be disregarded in ascertaining a company’s entitlement to relief under this Part.

(2) Arrangements are entered into for a disqualifying purpose if their main purpose, or one of their main purposes, is to enable a company to obtain relief under this Part—

(a) to which it would not otherwise be entitled, or

(b) of greater amount than that to which it would otherwise be entitled.

Additional limits

Power to further limit Chapter 2 relief

(1112J) The Treasury may, by regulations, limit the availability of relief under Chapter 2 in respect of—

(a) companies (or groups of companies) of a prescribed description,

(b) research and development projects of a prescribed description, or

(c) expenditure of a prescribed description.

Section 9

(1) Chapter 9 of Part 13 (supplementary provision) is amended as follows.

(2) In section 1126B (regulations about consumable items and research and development), omit subsection (3).

(3) In section 1128 (meaning of “ externally provided worker ”), in subsection (9), for “1131” substitute “ 1132A ” .

(4) In section 1129 (qualifying expenditure on externally provided workers: connected persons)—

(a) in subsection (3) omit the “and” at the end of paragraph (b);

(b) in that subsection, at the end of paragraph (c) insert “, and

(d) is attributable to qualifying earnings of externally provided workers.

(5) In section 1131 (qualifying expenditure on externally provided workers: other cases)—

(a) in subsection (2), for “65% of the staff provision payment” substitute “65% of so much of the staff provision payment as is attributable to qualifying earnings of externally provided workers” ;

(b) after subsection (3) insert—

(4) Any apportionment of expenditure of the company necessary for the purposes of this section is to be made on a just and reasonable basis.

(6) After section 1132 insert—

“Qualifying earnings”

(1132A)

(1) This section determines what are “ qualifying earnings ” in relation to an externally provided worker for the purposes of this Part.

(2) The worker’s earnings are qualifying earnings if either—

(a) the staff controller, or

(b) the company in relation to which the worker is an externally provided worker,

is, in respect of any part of those earnings, required to account to an officer of Revenue and Customs both for income tax under PAYE regulations and for Class 1 national insurance contributions.

(3) If subsection (2) does not apply, the worker’s earnings are qualifying earnings if and to the extent that they are attributable to relevant research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) In this section, “ the worker’s earnings ” means the worker’s earnings under the contract mentioned in section 1128(7).

(7) For section 1133 and the italic heading preceding it substitute—

Contracting out

Contracted out research and development

(1133)

(1) This section applies for the purposes of this Part.

(2) A person “contracts out” research and development if—

(a) the person enters into a contract under which activities are to be undertaken for it (whether by another party to the contract or by a sub-contractor),

(b) the activities undertaken in order to meet the obligations owed to the person under the contract include research and development, and

(c) it is reasonable to assume, having regard to the terms of the contract and any surrounding circumstances, that the person intended or contemplated when entering into the contract that research and development of that sort would be undertaken in order to meet those obligations.

(3) The research and development that is “contracted out” is the research and development referred to in subsection (2) (b) , to the extent that subsection (2) (c) is satisfied in relation to it.

(4) Research and development contracted out by a person is contracted out “to”—

(a) the party to the contract who undertakes the obligations referred to in subsection (2) (b) , and

(b) any sub-contractor who undertakes contractual responsibility for the activities needed to meet those obligations.

(5) References to a sub-contractor include any sub-contractor at one or more removes from the contract referred to in subsection (2) .

(6) A “contractor payment” is a payment made in respect of contracted out research and development to a person to whom it is contracted out.

(7) A payment that relates only partly to contracted out research and development is to be apportioned on a just and reasonable basis for the purposes of subsection (6) .

(8) Sections 1134 to 1136 determine the “qualifying element” of a contractor payment.

(8) In section 1134 (qualifying element of sub-contractor payment made between connected persons)—

(a) in the heading, for “sub-contractor” substitute “contractor” ;

(b) in subsection (1), for paragraphs (a) and (b) (not including the following “and”) substitute—

(a) a company (“ A ”) makes a contractor payment to another person (“ B ”),

(b) A and B are connected,

(c) in subsection (1)(c)—

(i) omit “sub-contractor”;

(ii) for “the sub-contractor’s”, in both places it appears, substitute “B’s” ;

(d) in subsection (2)—

(i) in the words before paragraph (a), omit “sub-contractor”;

(ii) in paragraph (b), for “the sub-contractor’s” substitute “B’s” ;

(e) in subsection (3)—

(i) in the words before paragraph (a), for “the sub-contractor” substitute “B” ;

(ii) in paragraph (a), for “the sub-contractor”, in the first place it appears, substitute “B” ;

(iii) also in paragraph (a), omit “sub-contractor” in the second place it appears;

(iv) for paragraph (d) substitute—

(e) is incurred in respect of—

(i) research and development that is undertaken in the United Kingdom, or

(ii) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(f) in subsection (4)—

(i) in paragraph (a), for “the sub-contractor” substitute “B” ;

(ii) in paragraph (b), for “the company’s”, in both places it appears, substitute “A’s” ;

(iii) also in paragraph (b), for “sub-contractor” substitute “contractor” ;

(g) for subsection (5) substitute—

(5) In section 1123 (staffing costs) and sections 1127 to 1131 (qualifying expenditure on externally provided workers) as they apply for the purposes of subsection (3)(c), references to a company are to be read as references to B.

(h) in subsection (6), for “the company or the sub-contractor” substitute “A or B” .

(9) In section 1135 (election to be treated as connected for purpose of determining qualifying element)—

(a) in subsection (1), for “A company and a sub-contractor who are not connected” substitute “Where a company makes a contractor payment to a person with whom it is not connected, the company and that person” ;

(b) in subsection (2)—

(i) for “sub-contractor” substitute “contractor” ;

(ii) omit “other arrangement”;

(c) in subsection (4), omit “or other arrangement”.

(10) For section 1136 substitute—

Qualifying element of contractor payment: other cases

(1136)

(1) This section applies to a contractor payment to which section 1134 does not apply.

(2) The qualifying element of the payment is 65% of the relevant portion of the payment.

(3) The relevant portion is the portion that is incurred in respect of—

(a) research and development that is undertaken in the United Kingdom, or

(b) research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4) An apportionment of expenditure necessary for the purposes of this section is to be made on a just and reasonable basis.

(11) Omit section 1138 (meaning of “ subsidised expenditure ”).

(12) In place of the omitted section 1138 insert—

Externally provided workers and contractors: R&D undertaken abroad

(1138A)

(1) This section applies to research and development undertaken outside the United Kingdom if—

(a) the research and development is undertaken in the circumstances described in subsection (2) , or

(b) regulations made by the Treasury provide for this section to apply.

(2) The circumstances are that there are conditions necessary for the purposes of the research and development—

(a) that are not present in the United Kingdom,

(b) that are present in the location in which the research and development is undertaken, and

(c) that it would be wholly unreasonable for the company to replicate in the United Kingdom.

(3) In subsection (2) “conditions”—

(a) includes—

(i) geographical, environmental or social conditions;

(ii) legal or regulatory requirements as a result of which the research and development may not be undertaken in the United Kingdom, but

(b) does not include conditions so far as relating to—

(i) the cost of the research and development;

(ii) the availability of workers to carry out the research and development.

(4) The Treasury may by regulations make provision specifying things that are not conditions for the purposes of subsection (2) .

Exempt foreign permanent establishments

(1138B) For the purposes of this Part in its application to an accounting period, a company’s expenditure is “attributable to an exempt foreign permanent establishment” if—

(a) an election by the company under section 18A applies to the period, and

(b) the expenditure is brought into account in calculating a relevant profits amount or a relevant losses amount for the purposes of that section as it applies in relation to the period.

(13) After section 1140 insert—

Groups

(1140A) For the purposes of this Part, a company is in the same group as another company if those companies are in the same group for the purposes of Part 5 of CTA 2010.

(14) In section 1142 (meaning of “ qualifying body ”)—

(a) for the heading substitute “Ineligible companies” ;

(b) in subsection (1), in the words before paragraph (a), for ““ qualifying body ” means” substitute “a company is an “ineligible company” if it is” ;

(c) after subsection (4) insert—

(5) Two companies that are in the same group may make a joint election the effect of which is that—

(a) in respect of any research and development contracted out by one of those companies to the other, the company contracting it out is to be treated for the purposes of this Part as an ineligible company, and

(b) in determining whether activity is research and development for the purposes of this Part, anything done by one of those companies further to a contract with the other is to be treated as if done by the other company, in any case where that results in activity that would not otherwise be research and development being regarded as such.

(6) Such an election—

(a) must be made by notice in writing to an officer of Revenue and Customs, and

(b) has effect until—

(i) it is revoked by either company by further such notice, or

(ii) the companies are no longer in the same group.

(15) In section 1142B (meaning of “R&D claim”), in paragraph (a), for “104A” substitute “ 1042C ” .

(16) After section 1142B insert—

Right to payment of credit inalienable

(1142C)

(1) The right of a company to be paid an amount of R&D expenditure credit or R&D tax credit may not be assigned.

(2) Accordingly, a purported assignment of such a right, or an agreement to assign such a right, is void.

(3) References to assignment in this section are to be read in Scotland as references to assignation.

(17) After section 1142C (inserted by sub-paragraph (16) ) insert—

General rule against payments of credit to nominees

(1142D)

(1) Where an amount of R&D expenditure credit or R&D tax credit is owed to a company, an officer of Revenue and Customs may not pay the amount to a person other than the company (even on the instruction or at the request of the company).

(2) Subsection (1) does not apply if—

(a) the company requests that payment be made to a person connected with the company, or

(b) the officer is satisfied that exceptional circumstances make payment to the company impracticable or inconvenient.

(18) After section 1142D (inserted by sub-paragraph (17) ) insert—

Orders and regulations: ancillary provision

(1142E) Any order or regulations under this Part may—

(a) contain incidental, supplemental, consequential and transitional provision and savings;

(b) make different provision for different purposes or areas.

Section 10 FA 1998

(1) Schedule 18 to FA 1998 (company tax returns) is amended as follows.

(2) In paragraph 52(2A)(b) (application of provisions about discovery assessments to amounts paid by way of R&D expenditure credit), for “Chapter 6A of Part 3” substitute “Chapter 1A of Part 13” .

(3) In paragraph 83A (application of Part 9A of the Schedule to claims for R&D relief), for the words from “to” to the end substitute “to claims for relief under Part 13 of the Corporation Tax Act 2009 (relief for research and development).”

(4) In paragraph 83E (deadlines for claiming R&D relief)—

(a) in sub-paragraph (2)(a), after “under” insert “Chapter 2 of” ;

(b) in sub-paragraph (3), for “Chapter 6A of Part 3” substitute “Chapter 1A of Part 13” .

Section 11 FA 2007

In Schedule 24 to FA 2007 (penalties for errors), in paragraph 28(fa)(ia) (“ corporation tax credit ” includes R&D expenditure credit), for “Chapter 6A of Part 3” substitute “Chapter 1A of Part 13” .