R&D in the Spring Statement

Last month, the chancellor presented his Spring statement, which was a relatively low key affair with regards to R&D changes. Unsurprisingly the main focus of the statement was on National Insurance threshold change and fuel duty change. Below is a screenshot of the detail of the R&D section.

3.14 R&D tax relief reform – The government set out in the Tax Administration and Maintenance Command Paper that R&D tax reliefs would be reformed to include some cloud and data costs and refocus support on R&D carried out in the UK. The government has listened to stakeholders and can confirm that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. The government remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. The government recognises that there are some cases where it is necessary for the R&D to take place overseas. The government will, therefore, legislate so that expenditure on overseas R&D activities can still qualify where there are:

• material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep-ocean research
• regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost.

Where required, legislation will be published in draft before being included in a future Finance Bill to come into effect in April 2023.

There are five key areas that came into focus on R&D in the statement.

1. The definition of R&D has been expanded to include pure mathematics. This will come into effect in April 2023.
2. Previously, it was announced that there was an intention to ban claims including overseas expenditure, therefore it would prevent overseas subcontractor costs being included in an R&D claim. Now UK companies are allowed overseas expenditure, but only in very specific circumstances. Costs can now be included if there are; material factors such as geography, environment, population, or other conditions that are not present in the UK, which are required for the research. An example of this would be in the case of deep ocean research. Secondly, you can now include costs if they are regulatory or have legal requirements for the activities to take part outside of the UK. An example of this could be clinical trials.
3. Despite not featuring in the written statement, the speech did include mention of RDEC. There was some consideration about increasing rates for RDEC claims. This is worthwhile keeping an eye out for in future statements as there are currently no details available
4. There was a reiteration of the aim to include cloud computing costs. Once again, there are no official details in relation to this because any changes announced that require legislation would be in the 2022 Autumn Budget and likely to come into force from 1st April 2023.
5. There is going to be additional compliance resources in general. The chancellor announced that HMRC will be given £161 million over the next five years to increase compliance capacity. This is not directly targeted at R&D, but the ripple effects will be felt in this area.

The link to the Spring statement is below. If you would like to discuss with a member of the team the details of the statement or indeed your own R&D qualifying activity, please do get in touch.

Link to Spring Statement :  Spring Statement 2022: documents – GOV.UK (www.gov.uk)