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R&D allowances can be claimed by a person who incurs qualifying expenditure on R&D. 'Qualifying expenditure' means capital expenditure incurred by a person (P) on R&D directly undertaken by P or on P's behalf if¹:

1. Ìý

   (a)ÌýÌýÌýÌý P is carrying on a trade when the expenditure is incurred and the R&D 'relates to' that trade; or

2. Ìý

   (b)ÌýÌýÌýÌý after incurring the expenditure P sets up and commences a trade connected with the R&D

The trade by reference to which expenditure is qualifying expenditure is referred to as 'the relevant trade' in relation to that expenditure².

References to R&D which 'relates to' a trade or a class of trades include:

1. Ìý

   (a)ÌýÌýÌýÌý R&D which may lead to or facilitate an extension of that trade

2. Ìý

   (b)ÌýÌýÌýÌý R&D of a medical nature which has a special relation to the welfare of workers employed in that trade³

Where a trader has a trade which consists solely of research and development (for example, where a group of companies