At Spring Budget 2021 the government launched its review of the two R&D tax relief schemes – the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D tax relief. As part of this, HMRC ran a consultation which received 183 responses.At Autumn Budget 2021 the government announced reforms to:
- support modern research methods by expanding qualifying expenditure to include data and cloud costs
- more effectively capture the spillover benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
- target abuse and improve compliance
Data and cloud costs
The following new categories of expenditure will be brought into scope:
- licence payments for datasets; and
- 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
Government proposes to limit relief for payments to subcontractors, in both schemes, to claims where the subcontracted activities take place in the UK. This will help ensure that the spillovers 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. 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 how HMRC can target its compliance work
To protect the integrity of the reliefs 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.
On 8th December the R&D Communication Forum (RDCF) (formerly the RDCC) met with industry to explain the thinking behind the announcements. They invited further contributions to the review.
Having been actively involved in this process from the start, MSC will prepare their reply ahead of the final submission date of 8th February.
