ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change has no implications for the amount of tax due, who pays it or when. It affects (in principle but not in practice) only administrative matters. EIS
Section 289(2)(b) of ICTA permits the carrying on of R&D to be a qualifying business activity. But this permission is limited to cases where it is intended that a future qualifying trade will be derived from that R&D. Section 289(2)(b) says:
“Research and development ….from which it is intended that a qualifying trade …will be derived …”
Paragraph 25(2) of Schedule 15 to FA 2000 (CVS) is the provision that broadly corresponds with section 289(2)(b) of ICTA. But in CVS this corresponding provision goes further by also allowing the R&D to benefit an existing or future qualifying trade within the company or group concerned. Paragraph 25(2) says (emphasis added):
“…intended that…a connected qualifying trade will be derived or benefit…”
In practice, R&D that benefits an existing trade falls, in many cases, within section 289(2)(a) of ICTA as the R&D is part of preparing to carry on, or carrying on a qualifying trade. But basing section 179(4)(b)(ii) and (5)(b) of this Act on paragraph 25(2) of Schedule 15 to FA 2000 by adding a reference to R&D benefiting a trade makes it clearer that this kind of R&D may be a qualifying business activity.
For the purpose of determining what is the business of a trading group, section 293(3D)(b) of ICTA provides that the holding and managing of property used by the company or any of its subsidiaries in certain cases is disregarded in considering what are the activities of a member of the group. This includes property used for R&D:
“from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived.”
To be consistent with the change made in the definition of a qualifying business activity and with CVS (where the meaning of qualifying trade in paragraph 25 of Schedule 15 to FA 2000 is carried over into paragraph 23(7)(b) for the purposes of a parallel disregard) section 181(6)(d) of this Act provides as follows:
“…the holding and managing of property used by a group company for the purpose of research and development from which it is intended -(i)that a qualifying trade to be carried on by a group company will be derived, or(ii)that a qualifying trade carried on or to be carried on by a group company will benefit.”