Introduction New section 1126A
4.The new section 1126A adds to the attribution rules in section 1126.
5.Subsection (1) excludes certain expenditure on items such as materials, components or machine parts making up a finished product. Where such items are both used in the development of a product and are part of the product that is then transferred for consideration in the ordinary course of business, the cost of the items included in the transferred product will not be qualifying expenditure.
6.Subsection (2) excludes expenditure on certain items which are used in a production process that itself involves some element of research and development. Where this process results in those items being transferred for consideration in the ordinary course of business then the cost of those items transferred will not be qualifying expenditure.
7.Subsections (3) and (4) require an apportionment to be made between non-qualifying and qualifying expenditure on consumable item where not all of the product referred to in subsections (1) and (2) is sold or transferred. The effect is that if some of the product is retained for additional trials, or discarded as sub-standard, the costs of the consumable items in the retained or discarded products will remain qualifying expenditure and will not be excluded by subsections (1) or (2). This applies whether the product is a single item measured in terms of volume or weight (subsection (3)), or is made as discrete units (subsection (4)).
8.Subsection (5) ensures that reference to producing an item refers to the entire process, including the use of ancillaries, such as packaging, that might be required before it is transferred.
9.Subsection (6) ensures that reference to a consumable item forming part of a product includes situations where that item has been physically or chemically changed in some way during the production process.
10.Subsection (7) defines transfer of an item.
11.Subsection (8) excludes the provision of test results, on its own, from being consideration or the transfer of an item, covering cases where an item is supplied for evaluation or testing with no other recompense to the person who created it.
12.Subsection (9) provides that the transfer of waste and scrap items is not a transfer in the ordinary course of business, so regardless that some consideration is received for the transfer (for example, because they may be recycled or valuable substances recovered) the relevant costs will be allowable.
13.Subsection (10) defines item and relevant person.