Finance Bill 2002
Amendment 61
Page: 192
Line: 43
Mr Andrew Smith (Lab, Oxford East)
Schedule 12, page 192, line 24, leave out ?any? and insert ?that?.
EXPLANATORY NOTE
SUMMARY
1. This amendment corrects a defect in sub-paragraph (2) of paragraph 11 to Schedule 12 which could otherwise allow a company to obtain the new R&D tax credit for expenditure which has been deferred to future years.
DETAILS OF THE AMENDMENT
2. Sub-paragraph (2) of paragraph 11 to Schedule 12 provides for the additional deduction of 25% of qualifying expenditure in computing the profits of a company's trade for an accounting period.
3. A basic condition for this additional deduction to apply is that the qualifying expenditure must itself be deductible for computing a company's profit for tax purposes.
4. As drafted, sub-paragraph (2) requires that this qualifying expenditure be deductible for ?any period?. This condition could be satisfied where the expenditure has been deferred, that is, not included in the company's profit and loss account for the period for which tax credit is claimed, but instead placed on the company's balance sheet, to be included in the profit and loss for some future period. Credit could therefore be due, immediately, for such expenditure.
5. This was not the intention behind the legislation. As with the existing SME tax credit (where the corresponding provision is at paragraph 13 to Schedule 20 Finance Act 2000) the intention was to give credit when the expenditure is reflected in the profit and loss account, which is when the normal 100% deduction would also be due.
6. The amendment corrects this by replacing the word ?any? by the word ?that? so sub-paragraph (2) will refer to ?that period? throughout.
BACKGROUND NOTE
7. A company incurring R&D expenditure may either take the expense to the profit and loss account for that year, or (in certain circumstances allowed by accounting standards) defer doing so and place it on the balance sheet.
8. The ?deferred revenue expenditure? held on the balance sheet is released to the profit and loss account in subsequent years, usually to match income arising from it.
9. In these circumstances, the intention with the large company scheme was, as with the SME scheme, that tax credit would only be given when the expenditure is recognised in the profit and loss account. However the present wording of the Finance Bill does not achieve this. The effect is to give a company credit for expenditure which is deductible in some future period, allowing it immediate credit for such deferred expenditure.
10. The result is not to give any additional credit in the long run, but to bring forward credit which would have been given in later years.