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R&D Tax Relief Reforms – New Categories, UK Restrictions

R&D

Future reforms to R&D tax relief were announced in the 2021 Autumn Budget and will be coming into play in the near future. The news is good for smaller UK based businesses, less so for larger global entities.

Reforms to R&D reliefs are designed to encourage businesses to change their behaviour and to support the related activities to these changes with a focus on getting more cutting edge and keeping things in the UK. These tax reforms will take effect in April 2023 and will be reviewed in 2028.

New Categories to Claim on

The positive side sees eligible R&D costs expanded to include data acquisition and cloud computing costs. With many businesses moving to the cloud, this is likely to appeal to many businesses.

This modernisation to the relief will ensure there are best incentives to cutting edge R&D – the type that relies on data analysis and processing via the cloud.

Businesses will be able to claim R&D relief for licence payments for datasets, cloud computing costs that can be attributed to computation, data processing, analytics and software. Also staff costs for creation of datasets on fieldwork carried out.

Refocusing reliefs in the UK

On the flip side, global business, will be hit by exclusion of overseas costs from claims bringing the UK in line with countries such as the US and Australia. This could reduce R&D credits where R&D is carried out in collaboration by global teams. The increase in corporation tax rates from 2023 will see cash value of R&D credits reduced for large businesses too.

Specific reforms

To be more specific, these are the rules coming into play:

  • license payments for datasets/cloud computing costs for data processing/software to be included as 2 new qualifying expenditure categories
  • relief for cost of R&D activity subcontracted to third parties restricted to work performed in the UK only
  • relief for the cost of employing externally provided workers restricted to workers paid by a UK payroll only
  • R&D claims must be made digitally and endorsed by a named senior officer of the company
  • all companies to obtain advance assurance from HMRC of R&D tax claims
  • HMRC is also looking into understanding the nature and scale of the error and fraud associated with the reliefs.

For further information visit the government web page R&D Tax Reliefs: consultation.

Let’s Talk

We’ve a wealth of knowledge and expertise in R&D tax relief at LHP, so if you need advice let’s talk.

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