I am confused as to the effective commencement date of the new enhanced research and development capital allowance (previously scientific research). The references to scientific research are replaced by Part II of Schedule 19 to the Finance Act 2000 with effect for accounting periods ending after 31 March 2000. However, the definition of research and development was considerably widened by Part I of Schedule 19 to the Finance Act 2000 which does not have a specified commencement date.
I am confused as to the effective commencement date of the new enhanced research and development capital allowance (previously scientific research). The references to scientific research are replaced by Part II of Schedule 19 to the Finance Act 2000 with effect for accounting periods ending after 31 March 2000. However, the definition of research and development was considerably widened by Part I of Schedule 19 to the Finance Act 2000 which does not have a specified commencement date. When can capital expenditure which falls under the wider definition of research and development first be incurred to qualify for the capital allowance? Is it:
* in an accounting period ending after 31 March 2000; or
* after Royal Assent of the Finance Act 2000, i.e. 28 July 2000?
(Query T15,795) – Test-tube.
Capital allowances are now given for qualifying expenditure on research and development rather than on scientific research. Research and development expenditure is defined as 'activities that fall to be treated as research and development in accordance with normal accounting practice' (section 837A(2), Taxes Act 1988). Scientific research is defined as 'any activities in the fields of natural or applied science for the extension of knowledge' (section 139, Capital Allowances Act 1990). The changes apply for income tax from 2000-2001 and for corporation tax for periods ending after 31 March 2000 (section 68, Finance Act 2000).
The effect of this is that the tax definition of research and development expenditure is the same as the accounting definition contained in Statement of Standard Accounting Practice 13. However, the Treasury may by regulations provide '(a) that such activities as may be prescribed are not "research and development" for the purposes of this section, and (b) that such other activities as may be prescribed are "research and development" for those purposes' (section 837A(3), Taxes Act 1988).
The statutory definition is modified by The Research and Development (Prescribed Activities) Regulations 2000 (SI 2000 No 2081). These regulations refer to the 'Guidelines on the Meaning of Research and Development (R&D) for Tax Purposes' issued by the Secretary of State for the Department of Trade and Industry on 28 July 2000. Activities treated as research and development in accordance with the guidelines are to be treated as research and development for tax purposes and activities excluded by the guidelines are excluded for tax purposes. These modifications were made on 28 July 2000 and are effective from 21 August 2000. – G.S.
Section 68(2), Finance Act 2000 causes the amendments in Part II of its Schedule 19 to take effect for the purposes of corporation tax for accounting periods ending after 31 March 2000. Section 12(3), Taxes Act 1988 ends such a period in various ways, usually within twelve months from commencement.
'Test-tube' might seem to be concerned as to whether any new law whatsoever can affect events occurring before the date of the Royal Assent. If so, this difficulty is catered for by section 4, Interpretation Act 1978. This says that, where provision is made in an Act for the Act (or a particular provision of it) to come into force at the beginning of that day, only in the absence of any such specification does the law become effective on (the beginning of) the day on which the Act receives the Royal Assent.
However, 'Test-tube' seems to have overlooked the restrictive text of the Part I in Schedule 19. Here, the meaning of research and development is introduced by the words 'The following provisions have effect for the purposes of, and subject to, the provisions of the Tax Acts which apply this section', that is to say, section 837A, Taxes Act 1988 (inserted by the Part I under discussion). Those applications are detailed seriatim in Part II. – Elder.
