After a long time of unparalleled economic crisis as a result of COVID-19, chancellor Rishi Sunak, was in good spirits as he unveiled his strategy to aid the UK’s recovery.
During his third budget, Sunak promised plans to pump “unprecedented funding” into innovation as he continued to support an investment-led recovery. He stated annual R&D spending will be £20 billion by 2024 and evidently recognises that innovating, fast-growing businesses will be a key factor in the UK’s regeneration.
Here’s a brief summary of what you need to know.
#1 Cloud computing and data to become qualifying R&D expenditure
Following the launch of a consultation in spring 2020 by HM Treasury, the government announced today that they will be expanding the qualifying R&D expenditure to include cloud computing and data.
The reason for the government taking the decision to broaden the scheme’s qualifying costs and adding cloud computing and data is to make sure credits are well-targeted and reflect modern R&D processes.
#2 Refocus R&D tax relief towards innovation in the UK
The government aims to refocus R&D tax relief towards innovation in the UK, identifying that the UK is not effectively capturing the benefits of R&D, which is funded by UK taxpayers through the R&D tax relief scheme.
For instance, UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019, and the ONS estimates that businesses only carried out £25.9 billion of privately-financed R&D in the UK. This gap is partly explained by companies being able to claim for the activity taking place overseas.
On this matter, Sunak declared today that from April 2023, the tax relief will refocus its attention domestically and encourage investment in the UK.
#3 Tackle abuse of and improve compliance with R&D tax relief
Following the consultation launched at the Spring Budget 2021, the government will set out plans to tackle the abuse of and improve compliance with the R&D tax reliefs in the autumn.
These plans will be legislated for in Finance Bill 2022-23 and take effect from April 2023.
#4 The government will invest £20bn in R&D by 2024-25
Chancellor Rishi Sunak announced the government’s plans for boosting innovation in today’s budget speech, stating that it would commit “unprecedented funding” into innovation.
By the end of parliament in 2024, R&D spending will be £20 billion per year, which is down from his previous commitment of £22 billion per year. The original target of £22 billion will now be reached by 2026-27, which is two years later than had been initially planned.
Sunak said that spending on R&D will rise to £20 billion a year by the end of this parliament, a 50 % increase from its start – the steepest cash boost ever. This will be in addition to the R&D tax relief, Sunak outlined.
This new commitment would take combined public and indirect support for R&D to 1.1% GDP in 2024-25. The OECD average is just 0.7%. For Germany, the figure is 0.9%, for France 1%, and for the US 0.7%.
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