Spring Statement Confirms Positive Changes in R&D Tax Relief
This top-to-bottom review of the R&D tax relief system is still very much an ongoing process, and we can expect further clarifications and developments later in the year.
The UK government has set itself a mission to rework its R&D tax relief schemes to better reflect the state of the industries it supports. We first talked about this in February and, while the outlook was generally positive, we felt there were still some serious questions that needed to be answered. Fast forward to last month’s Spring Statement from Chancellor Rishi Sunak, and a lot of those issues have now been addressed. With the new announcements, a few key hazy points have been clarified and at least one serious problem has been fixed. Here’s a quick breakdown of the main points.
Pure mathematics costs now covered
Advanced mathematics, naturally enough, underpins a great deal of modern research and development. Industries working with sophisticated projects like robotics, Artificial Intelligence and quantum computing can face significant costs associated with mathematics, and the Spring Statement rightly accepts that these expenses should be recognised by the R&D tax relief system. As a result, the definition of qualifying costs is being expanded to bring all mathematics into the scheme. This will also be a boost to sectors like design and manufacturing.
Cloud computing and storage costs
In another major announcement, the Spring Statement has brought all cloud computing and storage costs into the scope of R&D tax relief claims. This move, in a somewhat more limited form, was already mentioned in the previous Autumn Budget, but the greater scale and clarity we’re seeing here is extremely reassuring. It’s something many were arguing for after hearing the initial proposals, so it’s great to see that those concerns were acted on.
More flexibility in the rules covering overseas R&D
The previous announcement had set out to refocus R&D tax relief on work being done specifically within the UK. This threw up a number of difficult issues, not least of which was the fact that a great many of the research and development activities conducted by UK companies simply can’t be done here. This could be for geographical, regulatory or climatic reasons, but the end result is that a large amount of R&D expenditure was in danger of being ruled ineligible for relief.
The measures presented in the Spring Statement actually do a good job of addressing this. Under the new proposals, any R&D work conducted abroad could still count for tax relief as long as it’s impossible to do it within the UK, whether for practical or legal reasons. The full scope of these exemptions is tricky to judge right now, but it’s another very positive move and a clear sign that the concerns of innovative British businesses are being taken seriously.
There’s more to come...
This top-to-bottom review of the R&D tax relief system is still very much an ongoing process, and we can expect further clarifications and developments later in the year. There have been some suggestions, for example, that we might see a revision of the R&D Expenditure Credit (RDEC) scheme to make it more generous. We could also see more detail on the moves being made to clamp down on abuse of the systems. Expect all eyes in the R&D community to be locked firmly on the 2022 Autumn Budget. From what we’ve seen so far, though, the future of UK innovation is a bright one.
If you're in the business of breaking through barriers and pushing back boundaries, we can help you identify all your qualifying activity and get the tax relief you’ve earned. If you’re already claiming with RIFT but have questions about how the rule changes affect you, we can help there too. Call 01233 653002 or email at info@riftresearch.com.