Research & Development tax relief

The measure

The government has announced two new measures in relation to the research and development (R&D) tax relief regimes.

1. The first change is an expansion of qualifying expenditure to include data and cloud computing costs, following the consultation into R&D tax credits undertaken in 2020.
2. Secondly, the government intends to refocus the reliefs towards activities carried out in the UK to more effectively target their benefits at the UK economy. This change will bring the UK R&D regimes in line with those of Australia, Canada and the US.

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. 

Who will be affected?

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.

When will the measure come into effect?

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.