Spring Statement 2022 - Research and Development (R&D) Tax Relief

At the last budget in October 2021, the government set out a series of initial measures to reform the R&D tax relief system, which were expanded upon further as part of the Spring Statement announcements:

• The expansion of qualifying R&D expenditure – as well as being extended to include data and cloud costs (including storage), the definition of R&D expenditure will be expanded further to include ‘pure mathematics’ as a qualifying cost. This reform aims to support nascent sectors such as Artificial Intelligence, quantum computing and robotics, while also supporting sectors such as manufacturing and design.

• The restriction of R&D relief to costs incurred in the UK – there was clarification that vital R&D undertaken by businesses based in the UK will continue to qualify for tax reliefs where there is a ‘material’ or regulatory requirement for this work to be carried out overseas.

It was also announced that the government is considering reforming R&D tax credits, with the aim of further boosting R&D investment in the UK.

The chancellor did however point out that the R&D tax relief system has not delivered the desired results in terms of the amount businesses spend on R&D compared to the level of tax relief available, and therefore the review of R&D tax reliefs will continue to ensure they are effective and better value for money.

We expect to hear further details of any further changes in due course.

This article is a part of our dedicated Spring Forecast Statement hub. For more analysis and insight, please click here.