Capital Allowances Act 1990

137Allowances for capital expenditure on scientific research

(1)Subject to the provisions of this section and section 138, where a person—

(a)while carrying on a trade, incurs expenditure of a capital nature on scientific research related to that trade and directly undertaken by him or on his behalf, or

(b)incurs expenditure of a capital nature on scientific research directly undertaken by him or on his behalf, and thereafter sets up and commences a trade connected with that research,

a deduction equal to the whole of the expenditure shall be allowed in taxing the trade for the relevant chargeable period as defined in subsections (5) to (7) below.

(2)No allowance shall be made under subsection (1) above in respect of expenditure on the acquisition of, or of rights in or over, any land except in so far as, on a just apportionment, that expenditure is referable to the acquisition of, or of rights in or over, or of machinery or plant which forms part of, a building or other structure already constructed on that land.

(3)For the purposes of this section, expenditure on the provision of a dwelling is not scientific research expenditure; but where part of a building is used for scientific research and part consists of a dwelling and the capital expenditure which it is just to apportion to the construction or acquisition of the dwelling is not more than one-quarter of the capital expenditure which is referable to the construction or acquisition of the whole building, the whole of the building shall be treated for the purposes of this Part as used for scientific research.

(4)Subject to subsections (2) and (3) above, where after 26th July 1989 a person incurs capital expenditure which is partly within subsection (1) above and partly not, such apportionment of the expenditure shall be made for the purposes of this Part as may be just.

(5)For corporation tax purposes the relevant chargeable period shall be the accounting period in which the expenditure was incurred or, if it was incurred before the setting up and commencement of the trade, the accounting period beginning with that setting up and commencement.

(6)For income tax purposes the relevant chargeable period shall be—

(a)in the case of expenditure incurred before the end of the year of assessment in which the trade was set up and commenced, that year of assessment,

(b)in the case of expenditure incurred after the end of that year of assessment but not later than 12 months from the setting up and commencement of the trade, the year of assessment next following that in which the trade was set up and commenced,

(c)in the case of expenditure incurred after 12 months from the setting up and commencement of the trade and during the basis year for any year of assessment, but subject to subsection (7) below, that year of assessment,

(d)in the case of expenditure incurred during the year of assessment in which the trade is permanently discontinued, that year of assessment.

In paragraph (c) above, “basis year” means, in relation to a year of assessment, the period the profits or gains of which are, under section 60 of the principal Act, to be taken to be the profits or gains of the year preceding that year of assessment.

(7)For the purposes of subsection (6)(c) above—

(a)where two basis years overlap, any expenditure incurred in the period common to both shall be deemed to have been incurred in the first basis year only,

(b)where there is an interval between the end of the basis year for one year of assessment and the beginning of the basis year for the next year of assessment, any expenditure incurred during the interval shall be deemed to have been incurred in the second basis year, and

(c)any expenditure which is incurred before the end of, but after the end of the basis year for, the last complete year of assessment before the permanent discontinuance of the trade shall be deemed to have been incurred in that basis year,

and, in paragraph (a) above, the reference to the overlapping of two basis years includes a reference to the coincidence of two basis years, or to the inclusion of one basis year in another, and the reference to the period common to both of two basis years shall be construed accordingly.