R&D tax relief reform – what’s the story?

Jun 10, 2022 | HMRC, Tax

Change is coming to the R&D relief system, as announced by the Chancellor in his Spring Statement.

Here’s what you need to know about changes to the policy; how it might affect your company in practice; and why it’s still worth making a claim for tax credits.


Cloud costs

All cloud computing costs used for R&D, including storage, will be eligible for R&D relief.

This is a massive change. Now that most businesses are based online, it means you’re now able to retrospectively claim your costs back.

This is fantastic news for many companies – depreciating the old servers and changing how you worked was no small feat, so to now get some financial relief for it, is brilliant news for your business.


UK activities focus

The Government will remain committed to providing relief for any R&D activities in the UK.

This doesn’t mean you can’t claim from overseas in the right circumstances – but they’ve indicated a will to act on the consultation process feedback they’ve received.

This means overseas companies will only be able to claim R&D relief if they’re based outside of the UK for the following reasons:

  • Material factors – i.e geography, environment, population or other conditions – that are not present in the UK, are required for the research.
  • Regulatory requirements mean the activities must take place outside of the UK.


R&D definition expansion

The HMRC definition of R&D is ‘anything that includes activities that companies undertake to innovate and introduce new products and services. It is often the first stage in the development process. The goal is typically to take new products and services to market and add to the company’s bottom line.’

This definition has now been updated to include pure mathematics as a qualifying cost, and provide proper support for sectors like AI, robotics and quantum computing.

This should prove as a welcome boost for next-generation technology companies who need that extra leg up in funding.


RDEC rate

The research and development expenditure credit (RDEC) includes staff costs, such as salaries, employer’s NICs and pension contributions, business expenses and money spent on workers that were provided externally (EPWs) as well as some subcontractor costs.

Currently, this is set at 13% but is due to be reviewed to ensure the right amount of relief is given to boost R&D investment in the UK.

This should make the scheme more balanced, and RDEC will become a more competitive scheme internationally.


Improving compliance

Of course, people always want to cheat the system, something that HMRC are all too aware of.

The Government strongly stated its commitment to stopping this abuse of the R&D tax credit system, especially through the dedicated SME scheme.

A new team was set up to specifically team with this tax relief abuse.

If you want to find out more about R&D and how it will affect your business, get in touch with us today and we’ll talk you through it.

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