Commentary on Sections Overview Overview Section 1065: Qualifying Chapter 3 expenditure
2771.This section identifies the expenditure that qualifies for relief under this Chapter. It is based on paragraph 8 of Schedule 12 to FA 2002.
2772.Relief is given to companies that undertake the research and development themselves (section 1066), and to companies that commission the research and development from certain other persons (section 1067). This section prevents more than one company claiming the relief and the relief leaking out into the income tax sector.
2773.If a large company commissions the research and development that company will not be able to claim relief under Chapter 5 of this Part. This is because that Chapter requires the company to carry out the research and development itself. If the research and development is contracted out to a small or medium-sized enterprise the effect of subsection (2) is to allow that small or medium-sized enterprise company to claim relief under this Chapter.
2774.If the research and development is contracted out by another small or medium-sized enterprise that company will be able to claim relief itself under Chapter 2. Subsection (2) prevents relief being given to the sub-contractor company under this Chapter.
2775.The relief given by this Part is restricted to corporation tax payers. Subsection (2) prevents a sub-contractor company getting relief if the work has been contracted out by a person, other than a large company, who could get a deduction for the payment in calculating its trade profits. This prevents the sub-contractor passing on some of the benefit of the relief to an income tax payer by charging lower prices.