Upcoming changes for R&D from 2023

In the Spring Statement this year the Chancellor revealed the plans for his vision of the Research and Development landscape. The full extent of the changes will be confirmed in due course, but as things stand this is what is proposed…

Cloud Computing Costs

The chancellor’s announcement stated that “from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief.” The inclusion of “storage” in this category is a welcome addition, but full details will not be confirmed until the legislation is finalised.

It’s worth noting that later in the Spring Statement document, the categorical assertion that “all cloud computing costs” will be allowable has been subtly watered down to “the government… intends to include all cloud costs.”

Overseas R & D

Sunak’s statement echoes the government’s promise to “ensure that the UK more effectively captures the benefits of R&D funded by the reliefs.” In short, their aim is to focus tax relief on eligible activity carried out in the UK rather than overseas. There are two examples given where overseas R&D activity will still quality:

  • Where it is not physically possible to carry on the activity in the UK, e.g. deep ocean research;
  • Where regulatory or legal requirements mean that the activity cannot lawfully be carried out in the UK.

These two concessions don’t give much away, and there will potentially still be challenges from companies that have legitimate business structures with overseas entities, which could lead to further revisions.

Research and Development expenditure credit

Changes to the corporation tax rate from 2023 will also have the effect of reducing the value within RDEC (Research and Development expenditure credit) claims, with the benefit dropping from 10.5p to 9.7p per £1 spent. The government has acknowledged this and indicated that it will consider changes to address the issue.

Expansion to include pure mathematics

Sunak’s acknowledges that there is a growing volume of R&D activities which are fundamentally supported by mathematical advances, and as a result he intends to expand the definition of R&D for tax relief to include pure mathematics as a qualifying cost. This is likely to be of interest to those working in areas such as artificial intelligence, quantum computing and robotics.

Both the Public Accounts Committee and the National Audit Office have made clear that abuse of the R&D tax relief scheme (particularly the SME scheme) is an issue that needs to be addressed as a priority. The Spring Statement offered no further specifics on this, but it did include a commitment to ensuring that the reliefs are effective and deliver the best possible value for taxpayers.

Although there are still some uncertainties, R&D – and to an extent, capital expenditure – remain very much in the spotlight for the government. Continuous changes to allowable activity, revisions to the allowable expenditure, and increased scrutiny on R&D tax relief claims mean that expert support is needed now more than ever.

Our team are here to help with any queries you may have in relation to R&D – contact us today!

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