Against a relatively fragile economic backdrop, made all the more so by the current war in Ukraine and the ongoing cost of living squeeze, the Chancellor today set out the contents of his Spring Statement in the House of Commons.
Our Head of Tax, Jon Yeomans has delved into the detail of the supporting documents to bring you 6 key items that affect the R&D tax scheme:
1. Cloud computing and data will be introduced as qualifying costs in April 2023
In the last Autumn Budget, the government announced that cloud computing and data would be eligible for R&D tax relief. Today it was confirmed that these costs, including storage, will be eligible from April 2023.
2. Pure mathematics will be included as qualifying costs
To help match the growing volume of R&D fueled by mathematical advances, the definition of R&D tax relief will be expanded to include pure mathematics as a qualifying cost.
This will benefit developing industries in which the UK has a competitive advantage, such as Artificial Intelligence, quantum computing and robotics, while also supporting strong sectors like manufacturing and design.
3. The intent to refocus support for innovation in the UK has softened
The government now acknowledges there are certain cases where it is necessary for the R&D to take place overseas. As a result, the legislation will allow for some expenditure on overseas R&D activities to qualify.
For instance, R&D activity will likely qualify when there are material factors like geography, environment, population or other conditions that are not present in the UK but are required for the research. This could be deep-ocean research or research constrained by regulatory or other legal requirements that require activities to take place outside of the UK – for example, clinical trials.
We fed back our concerns about the exclusion of all overseas R&D activities for this exact reason, and we’re happy to see that the government has listened to stakeholders.
4. Further changes are coming
While important reforms have already been put in place, the government is looking at further changes to maximise the effectiveness of the scheme.
One item on the agenda is changing the R&D Expenditure Credit (RDEC) scheme to make it more internationally competitive. The Chancellor said that he will consider, in the autumn, whether to make the R&D Expenditure Credit more generous. Why RDEC specifically? That’s because recent research indicates it yields better returns: for every £1 of tax relief claimed, it stimulates £2.40 – £2.70 of further R&D expenditure. In contrast, the SME scheme only stimulates £0.60 – £1.28.
5. Combating abuse of the R&D tax scheme
The government will also consider what more can be done to combat abuse of R&D tax reliefs, particularly in the SME scheme, before this year’s Autumn Budget. While a dedicated team within HMRC was announced in November last year, further reforms are needed.
The government is continuing the review of R&D tax reliefs and further announcements will be made in the autumn.
6. Continued commitment to invest £20bn in R&D by 2024-25
The Chancellor launched a new ‘Tax Plan’ with three key ambitions based around the themes of capital, people and ideas. This included the ambition to create the conditions for higher UK economic growth through greater investment in Research and Development to help foster innovation, creativity and scientific breakthroughs. It also included a continued commitment to increase R&D spending to £20 billion a year by 2024 – an increase of £5 billion on current levels.
More concrete details about how the Chancellor intends to reform the R&D scheme to meet these ambitions will be provided in the Autumn Budget.
Want to know more?
Join us for the Spring Statement R&D Debrief – a 45-minute webinar at 10am on 1 April. Jon will dig into the detail of what these announcements mean, what this means for the broader scheme, and what you need to consider as you continue to invest in R&D. Register now!
Unsure what this means for your claim?
Contact us to learn more about how these changes may affect you.