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. VCT
Paragraph 4(1)(b) of Schedule 28B to ICTA provides that the carrying on of any activities of R&D is treated as the carrying on of a qualifying trade where it is intended that:
“there will be derived a trade that will comply with this paragraph.”
Paragraph 25(2) of Schedule 15 to FA 2000 (CVS) shares some elements with the VCT sub-paragraph. But in CVS the 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, in many cases, R&D that benefits an existing trade falls within paragraph 3(3)(b) of Schedule 28B to ICTA as the R&D is part of preparing to carry on a qualifying trade. But basing section 300(2) 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.
The rewritten provision, section 300(2)(b), provides that the carrying on of R&D from which it is intended:
“…a trade will benefit which …is or will be a qualifying trade … is to be treated as the carrying on of a qualifying trade.”
For the purpose of determining what is the business of a trading group, paragraph 3(9)(b) of Schedule 28B to ICTA provides that the holding and managing of property used by the company or any of its qualifying 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 qualifying subsidiaries will be derived.”
To be consistent with the change made in the definition of a qualifying trade 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 290(5)(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.”