Taxes Consolidation Act 1997 section 769I

Corporation tax referable to a specified trade

Section 769I sets out how to calculate knowledge development box (KDB) relief available to a company and the procedures for making and administering a claim.

• Qualifying profits are calculated using the formula [(QE + UE) / OE] × QA, where QE is qualifying expenditure, UE is uplift expenditure, OE is overall expenditure, and QA is the profit of the specified trade relevant to the qualifying asset; the formula may be applied on a per-asset basis or to total profits apportioned between qualifying assets.
• An irrevocable election into KDB treatment must be made once for each qualifying asset in the CT1 within 24 months of the end of the accounting period; the election continues until the qualifying asset is disposed of or ceases to be used, even if the underlying patent expires or lapses.
• The specified trade is treated as a separate trade, with income being overall income from the qualifying assets and expenses apportioned on a just and reasonable arm's length basis applied consistently from year to year.
• An allowance equal to 50% of qualifying profits is deducted as a trading expense, effectively reducing the corporation tax rate on those profits to 6.25%; Finance Act 2022 provides for this allowance to be reduced to 20% (effective rate of 10%) subject to a Ministerial commencement order.