The 2021 Autumn budget highlighted the treasury’s intention to modify to the UK R&D Incentive schemes, to ensure that the UK remains a competitive location for cutting edge innovation and the reliefs continue being effective to support this.
These changes are expected to come into force April 2023 and although over a year away, it is vital that companies are aware of how they may be impacted - such that they are fully prepared and remain well positioned to continue maximising the scheme.
The government is still welcoming views prior to redrafting legislation which will be published this summer.
Some key areas that have been highlighted in the budget and R&D consultations over the past year include:
Inclusion of Cloud Computing and Data Costs:
- This has been warmly received in industry as such costs are vital for development in a variety of sectors.
- The government has stipulated that these costs should be included insofar as they are contributing to R&D and not towards general overheads. Whilst computation, data processing, analytics tools and software will all qualify, there is less certainty over general management and tools used in day-to-day operations.
- Where services are paid as part of a package, care will need to be taken to apportion for the qualifying elements only. It may therefore be beneficial as companies to retain itemised invoices from suppliers, with a detailed breakdown of relevant costs, such that the apportionment methodology is clear.
Restriction to Overseas Relief:
- Subcontractor R&D activities will be required to take place in the UK, and EPWs will need to be within the UK tax regime (i.e., making PAYE / NIC contributions).
- This could have a disproportionate impact on the modern tech focussed industries that the scheme intends to help. These companies often utilise overseas staff to work in collaboration with their in-house teams to overcome technical challenges.
- Whilst the inclusion of overseas subcontractors may be restricted with upcoming changes, companies will still be able to claim R&D tax reliefs on the costs of software, and consumables sourced overseas.
- Although HMRC have noted there may be some exceptions, it is unclear what may be deemed as acceptable. However, HMRC have indicated that a claimant could potentially be requested to prove that there was no other choice but to use to the overseas subcontractor, and economic reasons alone may not be enough to justify this.
Find out more
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