Currently the UK R&D Tax Relief scheme provides generous tax relief to companies that undertake R&D in the hope that this will encourage investment and spur the growth and development of the UK economy in the medium to longer term.
However, there is now a widespread acceptance that the reliefs may either not be focused enough or can be subject to abuse by certain businesses so that the relief does not achieve its intended purpose.
There have already been attempts to combat this by introducing a PAYE related cap on the surrenderable loss and by tying the UK’s patent box regime, providing further generous tax reliefs on income from exploiting Intellectual Property, directly to the R&D expenditure incurred.
Autumn Budget 2021 changes
Further steps have now been announced, following a consultation earlier in the year and confirmed at the Autumn Budget 2021. The government will look to focus support towards UK businesses carrying out R&D domestically. It is likely relief will be restricted or withdrawn entirely where companies subcontract any of their qualifying R&D expenditure overseas.
This brings the R&D Tax Relief scheme in line with the Innovate UK R&D Grant programme, where all grant eligible R&D must now take place in the UK.
HMRC are also expected to be provided with greater powers in relation to the tackling of abuse and non-compliance with the R&D scheme to further focus the benefits of the scheme.
On a more positive note, the government confirmed that data and cloud computing costs would be included in the expanded definition of R&D qualifying expenditure. In the past data or cloud computing costs would only be eligible if they directly related to the R&D undertaken (which in itself was difficult to confirm), making it highly unlikely that 100% of the expenditure would qualify. This change would do away with that restriction, being a welcome change particularly for those companies in the software and IT sectors.
Upskill the UK work force
By implication, if UK R&D is going to increase, whilst at the same time the dependency on non-UK subcontracted expertise is expected to reduce, then the UK tech resource pool needs to grow much faster than it currently is.
For technology therefore, perhaps the biggest announcement was a pledge of £3.8 billion for skills and education, quadrupling the number of skills boot camps currently on offer. It’s worth noting that while there are 13 boot camps dedicated to cyber security around the country, there is just one for AI, one for software development and one for agile programming.
Reactions from tech business leaders and training companies make it clear that, whilst this is a welcome step in the right direction, much, much more needs to be done. More young people need to be attracted into tech related career subjects, and investment increased in upskilling to support the of future-proofed skills – like digital and data competencies – that are in demand today and will be, more so, in the future.
MSC R&D
We are specialists in large Software related R&D Tax Credit claims. Our clients can be confident that our analysts are fully up to speed with the regime’s rule book and ensure their claims are optimised and compliant.
We welcome the increased focus on the tackling of abuse and non-compliance.
