Section 1134 | Qualifying element of contractor payment: connected persons

(1)This section applies if—

(a)a company (“A”) makes a contractor payment to another person (“B”),

(b)A and B are connected, and

(c)in accordance with generally accepted accounting practice, the whole of the ... payment and all of B’s relevant expenditure have been brought into account in determining B’s profit or loss for a relevant period.

(2)The qualifying element of the ... payment is—

(a)the entire payment, or

(b)if less, an amount equal to B’s relevant expenditure.

(3)“Relevant expenditure” of B means expenditure that—

(a)is incurred by B in carrying on, on behalf of the company, the activities to which the ... payment relates,

(b)is not of a capital nature,

(c)is incurred on staffing costs, software , data licences, cloud computing services or consumable items or relevant payments to the subjects of a clinical trial or is qualifying expenditure on externally provided workers, and

(e)is incurred in respect of—

(i)research and development that is undertaken in the United Kingdom, or

(ii)research and development that is undertaken outside the United Kingdom and to which section 1138A applies.

(4)“Relevant period” means a period—

(a)for which accounts are drawn up for B, and

(b)that ends not more than 12 months after the end of A’s period of account in which the contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining A’s profit or loss.

(5)In section 1123 (staffing costs) and sections 1127 to 1131 (qualifying expenditure on externally provided workers) as they apply for the purposes of subsection (3)(c), references to a company are to be read as references to B.

(6)Any apportionment of expenditure of A or B necessary for the purposes of this section is to be made on a just and reasonable basis.