The government has announced two new measures in relation to the research and development (R&D) tax relief regimes.
Further details on these measures will be set out later in the autumn alongside plans to improve compliance with the R&D tax reliefs rules and tackle abuse of the regimes.
The expansion of the categories of qualifying expenditure to include data and cloud computing costs will benefit many companies, as there has been a significant move away from licensing software to using cloud services in recent years. Companies that incur expenditure on acquiring and processing data as part of undertaking R&D will also benefit.
Companies that use overseas resources on their R&D projects will be affected by the refocus of the reliefs on activities carried out in the UK. The details of this change have not yet been published. However, we anticipate that this may include companies that use overseas third parties to assist with their R&D, as well as companies that supplement their UK R&D resource with individuals from overseas group companies.
The extension of qualifying expenditure to include data and cloud computing costs will be legislated for in Finance Bill 2022-23 and will take effect from April 2023.
The government announced that the move away from allowing reliefs on R&D activity carried out overseas to refocus on activities carried out in the UK would be effective from April 2023.
The government has reaffirmed its intention to ensure the UK remains at the forefront of cutting-edge R&D and that the R&D regimes continue to help drive economic growth and create the jobs of the future.
The government has listened to the views of claimants in looking to extend and modernise the reliefs to include data and cloud computing costs as qualifying expenditure, ensuring consistency of relief, independent of how a company accesses software.
The refocus of the reliefs on R&D activity carried out in the UK aims to ensure that taxpayer money remains effectively targeted and that the UK economy captures the benefits of improved skills and know-how arising from the R&D. However, the full impact cannot be assessed until further details are published on how these measures will be implemented.