UK and International Tax news

R&D Tax Relief Reform Update

Monday 25th July 2022

HMRC has announced further updates to the reform of Research and Development tax reliefs included in the Autumn 2021 Budget.

In the Autumn 2021 Budget, the government announced reforms to R&D tax relief, by expanding the scope of qualifying expenditure to include data and cloud costs, to refocus support towards innovation in the UK, and to target abuse and improve compliance. Following stakeholder feedback, the Spring Statement 2022 announced further detail on these measures.

The government recognises there are cases where it is necessary to undertake R&D outside of the UK, and accordingly overseas subcontracted expenditure and the costs of overseas externally provided workers can still qualify where there are:

  • material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research, requiring the expenditure must take place outside of the UK, such as deep ocean research, or
  • regulatory or other legal requirements that activities must take place outside of the UK, including clinical trials.

The government intends to include all cloud costs incurred directly for R&D in the scope of qualifying expenditure.

The government also recognises the growing volume of R&D being undertaken which is underpinned by mathematics. The definition of qualifying R&D will be expanded to include all mathematics including ‘pure maths’.

The government has published draft legislation for stakeholder input for these measures, which will come into effect for accounting periods beginning on or after 1 April 2023, with legislation in the Finance Bill 2022-23.

Some of the changes will be delivered through supporting Statutory Instruments to follow the same timescale. Such secondary legislation will require companies to pre notify HMRC of R&D tax relief claims.  All corporation tax returns that contain an R&D claim, including amended returns, must be submitted digitally through HMRC’s tax return portal. Additional information requirements will include a description of the R&D undertaken, a breakdown of qualifying costs, details of any agent who has advised on the R&D claim and space for sign off from a senior officer of the company.

It is noted that the government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. With incentivising this investment by reducing the costs of innovation, the reliefs need to remain up to date, competitive and well-targeted.

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.

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