Spring Statement: R&D Tax Relief

Before the Spring Budget there was speculation about whether Sunak would announce big changes to the R&D relief, with the possibility of the generous SME relief maybe being cut back in order to cut back to support R&D Expenditure Credit relief for larger companies. There were no major announcements regarding this however the Chancellor did say that the government is yet to reform the generosity of tax credits on the money private firms spending on research and development.

It is expected that the government will increase the generosity of the RDEC relief which will be of interest to large companies and SMEs where they have to include some or all of their expenditure in an RDEC claim.

What is the impact on SME’s

What will need to be looked out for is if there is a reduction in the benefit for the SME relief. The government has concerns regarding RDEC seemingly being more successful at generating additional R&D activity as oppose to SME relief.

The relief of the R&D is still in continuance and in Autumn there are expected to be further announcements.

Relief of Data Expanded

It was already known that there were plans that would allow data costs where the data could be used in the R&D process, however the government is to go a step further and allow all cloud computing costs associated with R&D. As a result of this it means that costs such as storage costs for example will now also be allowed.

Currently mathematical advances aren’t included from the definition of R&D in the Guidelines on the Meaning of R&D for Tax Purposes, however there has been a small change in the guidelines which now allows this.

U-turn on overseas costs

Previously it has been announced that the government wanted to put restrictions on the availability of R&D relief where the R&D was carried out overseas. However Sunak announced that the R&D will still qualify in certain circumstances where R&D necessarily has to take place overseas. The legislation will therefore ensure that the overseas expenditure activities can still qualify where there are:

-          Material factors such as environment, population etc

-          Regulatory or other legal requirements that activities need to take place out of theh UK

These changed are expected to come into effect from April 2023 with a draft of the legislation to be published in Summer.