Following its announcement in the Spring Budget 2021, the government launched its review of the R&D tax relief schemes.

Further to this, announcements were made in the Autumn Budget 2021 that there would be reforms aimed at:-

• Supporting modern research methods by expanding qualifying expenditure to include data and cloud costs
• Refocusing support towards innovation in the UK
• Targeting abuse and improving compliance

Following these announcements, a report has been published by the government providing more detail around these reforms. This can be found here.

A summary of the key changes are outlined below.

Data and cloud costs

The following categories of expenditure will be brought within the scope of qualifying expenditure:

• Licence payments for datasets; and
• Cloud computing costs that can be attributed to computation, data processing and software.

This modernisation seeks to ensure that the reliefs better incentivise new R&D methods which rely on vast quantities of data that are analysed and processed via the cloud.

Refocussing reliefs towards UK innovation

Where companies subcontract R&D activity to a third party, they will in future only be able to claim relief for that expenditure where activities are carried out in the UK. Additionally, relief for externally provided workers will be restricted to those who fall within the scope of UK PAYE/NIC.

Companies will still be able to claim R&D tax reliefs on inputs to activity in the UK, such as the costs of software and consumables sourced overseas.

The Government is interested in views on whether there is a case for any narrowly defined exceptions to allow claims on some overseas activity.

Administrative changes

It is proposed that in future, companies will be required to provide additional information when making claims, claims should all be made digitally and be endorsed by a named senior officer of the company. The intention to claim must be notified in advance and HMRC will be provided with the details of any agent who has advised the company on compiling the claim.

In addition to the above there is an intention to amend legislation to address existing anomalies and unforeseen consequences. This will include amending the rule restricting relief for a company which is not a “going concern” so that it focusses on those that are unviable, rather than those not a going concern because a technical requirement of the accountancy standard has been triggered (for example, by the transfer of a trade).

The Government is seeking stakeholder views until 8 February 2022 and draft legislation will be published in the summer of 2022 for comments. Final legislation will be included in Finance Bill 2023 and take effect from April 2023.

We will be looking to contribute our views, and where you would like to discuss any particular issues that the information above raises for your business, please do get in touch so that these can be incorporated.