The government has this week published a report on R&D Tax Reliefs with details of the future reforms which were announced at Autumn Budget 2021 and the next steps. It also provides a summary of feedback received to the R&D Tax Reliefs consultation published in Spring which attracted 183 responses.
What changes are being made to R&D Tax Relief?
R&D Tax Credits are a valuable source of innovation funding and these latest updates aim to improve both the SME and RDEC schemes whilst making the process of claiming fairer. The 3 key changes to be implemented cover the following areas:
- Data and cloud costs
- Innovation in the UK
- Administration and compliance
These changes will be included in the Finance Bill 2022-23 and will take effect from April 2023. The government also continues to look at wider areas for reform with the objectives to ensure that the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted.
Data and cloud costs
In order to support modern research methods, qualifying expenditure will be expanded to include data and cloud costs. The following new categories of expenditure will be brought into scope:
- licence payments for datasets
- cloud computing costs that can be attributed to computation, data processing and software
This modernisation will ensure the reliefs better incentivise cutting edge R&D methods which rely on vast quantities of data that are analysed and processed via the cloud.
Focusing on innovation in the UK
With the aim of more effectively capturing the benefits of R&D funded by the reliefs, the government plans to refocus support towards innovation in the UK. It proposes to limit relief for payments to subcontractors, in both the SME and RDEC schemes, to claims where the subcontracted activities take place in the UK. This will help ensure that the spill-overs from the research, such as improved skills, benefit the UK.
Similarly, where companies claim for expenditure on externally provided workers (EPWs), these will in future be restricted to EPWs who are within UK PAYE/NIC. The government is interested in views from stakeholders on whether there is a case for any narrow exceptions to allow claims on some overseas activity.
Administrative changes to improve compliance
In a bid to target abuse and improve compliance, the Government proposes that in future, companies should provide more information when making claims, that claims should all be made digitally and that the intention to claim must be notified in advance.
There has been a large increase in the number of R&D tax advisers in recent years, many of whom either do not have the skills and experience to accurately prepare claims or intentionally submit fraudulent claims with a view to maximising their own income. This change is being implemented to protect the integrity of the reliefs and ensure that claims are handled ethically, in line with HMRC guidelines.
For further details on these changes and to read responses to the R&D Tax Reliefs consultation, you can access the full government report here.
Get help and advice from an experienced R&D tax relief specialist
In engaging the services of R&D Funding Group you can be confident that your claim will be handled by an experienced professional who has specialised in R&D Tax Credit claims for a minimum of 10 years. As one of our Directors sits on the HMRC consultative committee for R&D Tax Relief, you can also be assured we are always abreast of the latest changes and that we work strictly within the parameters of the schemes.
For a free, no-obligation consultation, please click here.