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Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 4 — Entitlement of SME to certain relief available to large companies

    374

 

amended in accordance with the following provisions of this Part of this

Schedule.

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

  12      (1)      Paragraph 7 (entitlement to relief under Part 2 of the Schedule) is amended

as follows.

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          (2)      In sub-paragraph (1)(b) (requirement for minimum R&D expenditure of

£25,000 or time apportioned part of that amount) in sub-paragraphs (i) and

(ii) for “£25,000” substitute “£10,000”.

Required minimum aggregate expenditure: inclusion of new class of expenditure

  13      (1)      Paragraph 7 is also amended as follows.

10

          (2)      In sub-paragraph (2) (meaning of “aggregate R&D expenditure”) omit the

word “and” immediately preceding paragraph (b) and at the end of that

paragraph add “, and

                    (c)                      its qualifying additional SME expenditure (see paragraph

10B).”.

15

R&D directly undertaken by SME: qualifying expenditure on externally provided workers

  14       In paragraph 9 (expenditure on research and development directly

undertaken by SME) for sub-paragraph (2) (the second condition, that the

expenditure must be incurred on staffing costs or consumable stores)

substitute—

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                           “(2)                  The second condition is that the expenditure—

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided

workers.”.

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Part 4

Entitlement of SME to certain relief available to large companies

Insertion of Part 2A of Schedule 12 to the Finance Act 2002

  15       After Part 2 of Schedule 12 to the Finance Act 2002 (c. 23) (entitlement to

relief for R&D expenditure: work sub-contracted to small or medium-sized

30

enterprise) insert the following Part—

“Part 2A

Entitlement of SME to additional relief available to large companies

Entitlement to relief under this Part

          10A                 (1)                  A company (“the SME”) is entitled to tax relief under this Part for

35

an accounting period if—

                      (a)                     it qualifies as a small or medium-sized enterprise in that

period, and

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 5 — Supplementary: amendments to Parts 3 to 6 of Schedule 12 to Finance Act 2002

    375

 

                      (b)                     its aggregate R&D expenditure for that period is not less

than—

                             (i)                            £10,000, if the accounting period is a period of 12

months, or

                             (ii)                           such amount as bears to £10,000 the same

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proportion as the accounting period bears to 12

months.

                           (2)                  Sub-paragraphs (2) and (3) of paragraph 7 (meaning of “aggregate

R&D expenditure” and “for an accounting period”) apply for the

purposes of this paragraph as they apply for the purposes of that

10

paragraph.

                           (3)                  Any relief to which a company is entitled under this Part for an

accounting period is in addition to any relief to which it may be

entitled under—

                      (a)                     Schedule 20 to the Finance Act 2000, or

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                      (b)                     Part 2 of this Schedule.

Qualifying additional SME expenditure

          10B                  For the purposes of this Schedule, the SME’s “qualifying

additional SME expenditure” is any expenditure which—

                      (a)                     had the SME been a large company throughout the

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accounting period in question, would have been

qualifying R&D expenditure of that company (see

paragraph 3), but

                      (b)                     is not qualifying R&D expenditure for the purposes of

Schedule 20 to the Finance Act 2000 (see paragraph 3 of

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that Schedule) in the case of the SME by reason only of

paragraph 3(7) or 10(2)(a)(iv) of that Schedule (subsidised

expenditure, within the meaning given by paragraph 8 of

that Schedule); and

                      (c)                     is not qualifying sub-contracted R&D expenditure for the

30

purposes of this Schedule (see paragraph 8) in the case of

the SME.”.

Part 5

Supplementary: amendments to Parts 3 to 6 of Schedule 12 to Finance Act 2002

Introductory

35

  16       Parts 3 to 6 of Schedule 12 to the Finance Act 2002 (c. 23) are amended in

accordance with the following provisions of this Part of this Schedule.

Deduction in computing profits of trade

  17      (1)      Paragraph 11 is amended as follows.

          (2)      In sub-paragraph (1) (application of paragraph) for “Part 1 or 2” substitute

40

“Part 1, 2 or 2A”.

          (3)      In sub-paragraph (3) (meaning of “qualifying expenditure”) omit the word

“and” immediately preceding paragraph (b) and at the end of that

 

 

Finance Bill
Schedule 31 — Tax relief for expenditure on research and development
Part 6 — Expenditure on vaccine research etc: Schedule 13 to Finance Act 2002

    376

 

paragraph insert “, and

                    (c)                      in the case of relief under Part 2A, qualifying additional SME

expenditure (see paragraph 10B).”.

Refunds of contributions to independent research and development

  18       In paragraph 15(1) (refunds of certain payments) omit the word “or”

5

immediately preceding paragraph (c) and at the end of that paragraph insert

“, or

                    (d)                      any expenditure which is qualifying additional SME

expenditure,”.

Meaning of “qualifying expenditure on externally provided workers”

10

  19      (1)      Paragraph 17 (which applies certain definitions from Schedule 20 to the

Finance Act 2000 (c. 17)) is amended as follows.

          (2)      Omit the word “and” immediately preceding paragraph (c).

          (3)      At the end of paragraph (c) add “; and

                    (d)                      paragraphs 8A to 8E (qualifying expenditure on externally

15

provided workers).”.

          (4)      The heading to the paragraph accordingly becomes—

“Meaning of “relevant research and development”, “staffing costs”, “consumable

stores” and “qualifying expenditure on externally provided workers””.

Part 6

20

Expenditure on vaccine research etc: Schedule 13 to Finance Act 2002

Introductory

  20       Schedule 13 to the Finance Act 2002 (c. 23) (tax relief for expenditure on

vaccine research etc) is amended in accordance with the following

provisions of this Part of this Schedule.

25

Reduction of required  qualifying expenditure from £25,000 to £10,000

  21      (1)      Paragraph 1 (entitlement to relief under the Schedule) is amended as

follows.

          (2)      In sub-paragraph (1) (requirement for minimum qualifying expenditure of

£25,000 or time apportioned part of that amount) in paragraphs (a) and (b)

30

for “£25,000” substitute “£10,000”.

Direct research and development: qualifying expenditure on externally provided workers

  22       In paragraph 3 (qualifying expenditure on direct research and development)

for sub-paragraph (5) (the fourth condition, that the expenditure is incurred

on staffing costs or consumable stores) substitute—

35

                           “(5)                  The fourth condition is that the expenditure—

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

 

 

Finance Bill
Schedule 32 — Tonnage tax: restrictions on capital allowances for lessors of ships

    377

 

                      (c)                     is qualifying expenditure on externally provided

workers.”.

Meaning of “qualifying expenditure on externally provided workers”

  23      (1)      Paragraph 5(3) (which applies certain definitions in Schedule 20 to the

Finance Act 2000) is amended as follows.

5

          (2)      Omit the word “and” immediately preceding paragraph (d).

          (3)      In paragraph (d), for “(subsidised expenditure),” substitute “(subsidised

expenditure); and”.

          (4)      After paragraph (d) insert the following paragraph—

                    “(e)                      paragraphs 8A to 8E (qualifying expenditure on externally

10

provided workers),”.

          (5)      The heading to paragraph 5 accordingly becomes—

“Meaning of “relevant R&D”, “small or medium-sized enterprise”, “staffing

costs”, “consumable stores”, “subsidised” and “qualifying expenditure on

externally provided workers””.

15

Relevant expenditure of sub-contractor: qualifying expenditure on externally provided workers

  24       In paragraph 9 (relevant expenditure of sub-contractor) for sub-paragraph

(3) (the second condition, that the expenditure must be incurred on staffing

costs or consumable stores) substitute—

                           “(3)                  The second condition is that the expenditure—

20

                      (a)                     is incurred on staffing costs,

                      (b)                     is incurred on consumable stores, or

                      (c)                     is qualifying expenditure on externally provided workers.

                                             In applying for the purposes of this sub-paragraph (by virtue of

paragraph 5 above)—

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                       paragraph 5 of Schedule 20 to the Finance Act 2000

(meaning of “staffing costs”), or

                       paragraphs 8A to 8E of that Schedule (qualifying

expenditure on externally provided workers),

                                             the references to the company shall be read as references to the

30

sub-contractor.”.

Schedule 32

Section 169

 

Tonnage tax: restrictions on capital allowances for lessors of ships

The ring fence: amendments to the provisions about capital allowances and ship leasing

  1       (1)      In Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax), Part 10 (the ring

35

fence: capital allowances: ship leasing) is amended as follows.

          (2)      Omit the word “finance” from the expression “finance lease” in paragraphs

89(1), 90(1), 92(1), 93(1), 94(1), 98(1)(a) and 99(1)(a).

          (3)      At the end of sub-paragraph (1) of paragraph 89 (introduction to Part 10)

 

 

Finance Bill
Schedule 32 — Tonnage tax: restrictions on capital allowances for lessors of ships

    378

 

insert—

                                     “This is subject to paragraph 89A (exception for ordinary charters).”.

          (4)      For sub-paragraph (2) of that paragraph substitute—

                           “(2)                  In this Part of this Schedule “lease” means any arrangements that

provide for a ship to be leased or otherwise made available by a

5

person (“the lessor”) to another person (“the lessee”).”.

          (5)      After that paragraph insert—

“Quantitative restrictions not to apply to ordinary charters

          89A                 (1)                  Paragraphs 94 to 102, and paragraph 89(1) so far as relating to

those paragraphs, do not apply in the following cases.

10

                           (2)                  The first case is where the ship is chartered out by a person who is

responsible—

                      (a)                     for the operation of the ship, including the appointment of

the master and those members of the crew engaged in

navigation, throughout the period of the charter, and

15

                      (b)                     for defraying all expenses in connection with the ship

throughout that period, or substantially all such expenses

other than those directly incidental to a particular voyage

or to the employment of the ship during that period.

                                             For the purposes of this sub-paragraph a person is “responsible” if

20

he is responsible as principal or if he appoints another person,

other than the lessee or a person connected with the lessee, to be

responsible in his place.

                           (3)                  The second case is where—

                      (a)                     the ship is chartered out by a person acting in the course of

25

a trade that consists of, or to a significant extent includes,

operating ships, and

                      (b)                     the conditions in sub-paragraph (4) are met.

                           (4)                  Those conditions are—

                      (a)                     that the period of the charter does not exceed seven years,

30

and there is no provision or agreement under which it

could be extended beyond seven years;

                      (b)                     that the period of the charter, together with any other

periods in the same ten years during which the ship is

chartered out to the lessee or a person connected with him,

35

does not exceed seven years in total;

                      (c)                     that there are no arrangements under which the lessee or a

person connected with him may acquire the ship, whether

directly or indirectly, from the lessor.

                            In paragraph (b) “the same ten years” means any period of ten

40

years that includes the period of the charter mentioned in that

paragraph.

                           (5)                  References in this paragraph to the period of a charter are to the

term specified in the lease or, if longer, the actual period during

which the ship is chartered.

45

                           (6)                  Section 839 of the Taxes Act 1988 (connected persons) applies for

the purposes of this paragraph.”.

 

 

Finance Bill
Schedule 32 — Tonnage tax: restrictions on capital allowances for lessors of ships

    379

 

Consequential amendments

  2       (1)      In paragraph 41(4) of that Schedule (the requirement not to enter into tax

avoidance arrangements: exemption for finance leases)—

              (a)             in the first sentence omit “finance”;

              (b)             for the second sentence substitute—

5

                                                                “In this sub-paragraph “lease”, and “lessor” in relation to a

lease, have the meaning given by paragraph 89(2).”.

          (2)      In paragraph 147 (index of defined expressions)—

              (a)             omit the entry for “finance lease (and lessor and lessee) (in Part X)”;

              (b)             insert at the appropriate place—

10

                                  “lease (and lessor and lessee) (in Part X)             paragraph 89(2)”.

Commencement and temporary provision

  3       (1)      Subject to paragraph 4(2), the amendments made by paragraphs 1 and 2

apply in relation to any lease entered into on or after 19th December 2002.

          (2)      In sub-paragraph (4)(b) of the paragraph 89A inserted by paragraph 1(5)

15

above, the reference to any other periods during which the ship is chartered

out does not include any period during which it is chartered out under a

lease entered into before 19th December 2002.

  4       (1)      This paragraph applies in relation to any lease entered into on or after 19th

December 2002 and before 16 April 2003.

20

          (2)      Part 10 of the Schedule 22 to the Finance Act 2000 (c. 17) has effect as if,

instead of the paragraph inserted after paragraph 89 by paragraph 1(5)

above, the following paragraph were inserted—

“Exception for ordinary charters

          89A                 (1)                  Paragraph 89(1), and the provisions of this Part of this Schedule

25

listed there, do not apply in the following cases.

                           (2)                  The first case is where the ship is chartered out by a person who is

responsible—

                      (a)                     for the operation of the ship, including the appointment of

the master and those members of the crew engaged in

30

navigation, throughout the period of the charter, and

                      (b)                     for defraying all expenses in connection with the ship

throughout that period, or substantially all such expenses

other than those directly incidental to a particular voyage

or to the employment of the ship during that period.

35

                                             For the purposes of this sub-paragraph a person is “responsible” if

he is responsible as principal or if he appoints another person,

other than the lessee or a person connected with the lessee, to be

responsible in his place.

                           (3)                  The second case is where—

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                      (a)                     the ship is chartered out to another person (“the charterer”)

because of short-term over-capacity,

                      (b)                     the person chartering out the ship does so in the course of

a trade that consists of or includes operating ships, and

                      (c)                     the conditions in sub-paragraph (4) are met.

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Finance Bill
Schedule 33 — Insurance companies

    380

 

                           (4)                  Those conditions are—

                      (a)                     that the period of the charter does not exceed three years,

and there is no provision or agreement under which it

could be extended beyond three years;

                      (b)                     that the period of the charter, together with any other

5

periods in the same five years during which the ship is

chartered out to the charterer or a person connected with

him, does not exceed three years in total;

                      (c)                     that neither the charterer nor any person connected with

him has an option to purchase the ship.

10

                           (5)                  In sub-paragraph (4)(b)—

                      (a)                     the reference to any other periods during which the ship is

chartered out does not include any period during which it

is chartered out under a lease entered into before 19th

December 2002;

15

                      (b)                     “the same five years” means any period of five years that

includes the period of the charter mentioned in that sub-

paragraph.

                           (6)                  References in this paragraph to the period of a charter are to the

term specified in the lease or, if longer, the actual period during

20

which the ship is chartered.

                           (7)                  Section 839 of the Taxes Act 1988 (connected persons) applies for

the purposes of this paragraph.”.

          (3)      Paragraph 93(1) of that Schedule (certificates required to support claim by

lessor) has effect as if after paragraph (a) there were inserted—

25

                      “(aa)                        that the lease is such that, by virtue of paragraph 89A

(exception for ordinary charters), paragraph 89(1) does not

apply, or”.

  5        In paragraphs 3 and 4 “lease” means any arrangements that provide for a

ship to be leased or otherwise made available by one person to another.

30

Schedule 33

Section 170

 

Insurance companies

Case I profits

  1       (1)      For section 82 of the Finance Act 1989 (c. 26) (calculation of profits of

insurance company in respect of life assurance business when computed in

35

accordance with provisions applicable to Case I of Schedule D) substitute—

       “82            Calculation of profits: bonuses etc

              (1)             This section and sections 82A and 82B below have effect where the

profits of an insurance company in respect of its life assurance

business are, for the purposes of the Taxes Act 1988, computed in

40

accordance with the provisions of that Act applicable to Case I of

Schedule D.

 

 

 
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