The spring statement included a focus on promoting business growth in the UK, with the stimulation of innovation and new ideas identified as a key driver to achieve this. R&D tax relief schemes currently in place provide UK companies with an additional incentive to innovate, however figures indicate the UK’s current R&D investment spend is less than half of the country average. It was, therefore, announced the government will seek to improve the benefits of the schemes to further boost innovation.
Following initial announcements made as part of the 2021 Autumn Statement, it was confirmed that from 1 April 2023 companies will now be able to include costs incurred on cloud computing and datasets where they have been incurred as part of a qualifying R&D project. The introduction of these additional cost categories helps to address insufficiencies in the current legislation, which failed to capture modern research and computing costs. In addition to cloud computing and data acquisition costs, it has also been confirmed that expenditure incurred on pure mathematics will also be eligible for relief from the same date.
Unfortunately, it is not all good news in terms of qualifying costs. As previously announced, there will be an increased focus on providing support for R&D activities undertaken in the UK, with costs incurred on overseas R&D activities no longer qualifying for relief from 1 April 2023 onwards. However, there will now be some exceptions to this rule if specific conditions are met – the exceptions will be limited to cases where there is a material factor or legal/regulatory requirement requiring the R&D work to be undertaken outside the UK. Where an exception is not applicable, this change could create significant issues for companies and groups who make use of a global talent pool or overseas specialists to undertake their R&D work.
In addition to the changes highlighted above, the spring statement also outlines there will be a further review of the generosity of the R&D tax credit scheme available to large companies. The large company scheme (known as ‘RDEC’) currently provides a tax credit to companies, calculated as 13% of the qualifying R&D expenditure. However, it is important to note the credit itself is subject to corporation tax, with the main rate of corporation tax due to increase to 25% from 1 April 2023. From this date the effective tax credit available to large companies will become 9.75%, therefore this appears to be a very well timed review.
If you have any questions on the proposed changes, please do not hesitate to contact me who will be able to discuss any impact on your future claims.