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Chapter CA60400

Document Cited in Related
Vincent
Published date16 April 2016
Record NumberCA60400
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
CAA01/S439 - S440

Qualifying expenditure is capital expenditure that a trader incurs on research and development directly undertaken by the trader or on the trader’s behalf provided that:

  • the research and development is related to a trade that the trader carries on, or
  • the trader sets up and commences a trade connected with the research and development.

RDA is only due if the research and development expenditure is related to the trade being carried on or about to be carried on. Research and development related to a trade includes:

  • any research and development which may lead to or facilitate an extension of the trade; and
  • medical research which has a special relation to the welfare of workers employed in that trade, for example research into an occupational disease.

You should only treat expenditure as incurred on behalf of a trader if there is a clear, close and direct link between the trader and the research undertaken. The relationship between the person claiming the allowances and the person undertaking the research need not be contractual, but if it is not it must be one of agency, or something similar to agency. The fact that research undertaken by someone else is for a trader’s benefit, or is in his interest, is not enough to make the expenditure qualify for RDA. The case of Gaspet Ltd v Elliss [1987] 60TC91 supports this. In that case the company provided funds and equipment necessary to conduct operations under a petroleum exploration licence in return for the rights to ownership of all petroleum won and saved to which the licensee was entitled. It claimed that the expenditure incurred under that agreement qualified forRDA because it was incurred on scientific research directly undertaken on its behalf. The courts rejected the claim. Under the agreement the company was responsible for the payment of expenses by the company carrying out the research and had rights to the ultimate potential fruits of the research, but the...

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