CIRD75200 | VRR: qualifying expenditure: for an accounting period

From HM Revenue & Customs · Corporate Intangibles Research and Development Manual

FA02/SCH13/PARA2

There are three types of qualifying expenditure:

on direct R&D CIRD75300,
on sub-contracted R&D CIRD75400, and
on contributions to independent R&D CIRD75500.

VRR is based on qualifying expenditure for an accounting period.

There are different definitions of qualifying expenditure on direct or sub-contracted R&D for an accounting period for SMEs and large companies.

For an SME expenditure is qualifying expenditure on direct or sub-contracted R&D for an accounting period if:

it can be deducted in computing trading profits for that period, or
where the expenditure is pre-trading expenditure, that expenditure would be deductible if the company was trading. Pre-trading expenditure is normally treated as incurred on the day that trading starts. Ignore this rule when you decide whether pre-trading expenditure is qualifying expenditure for an accounting period. If the company could have deducted pre-trading expenditure if it had been trading when the pre-trading expenditure was incurred, the pre-trading expenditure is qualifying expenditure for the accounting period in which it is actually incurred.

For a large company expenditure is qualifying expenditure on direct or sub-contracted R&D for an accounting period if it can be deducted in computing trading profits for that period.

This means that SMEs can claim VRR on pre-trading expenditure when it is incurred but large companies have to wait until the trade begins.

Expenditure on contributions to independent R&D is qualifying expenditure on contributions to independent R&D for an accounting period if it is incurred in that accounting period. As a result of changes introduced by FA 2008 expenditure incurred on or after 1 August 2008 on contributions to independent R&D will no longer qualify for VRR.