Follow up

R&D Tax Reliefs Report

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Changes to R&D published

Reform. The government remains committed to tax incentives for research and development (R&D). However, a number of concerns surrounding abuse of the current system have led to the publication of a Treasury report (see Follow up ) detailing changes that will take effect from April 2023, subject to parliamentary approval.

Modern. The first change is that there will be an expansion of qualifying expenditure to include modern working practices, including cloud computing and dataset licence payments and acquisition costs.

UK-only. A major concern highlighted at the Budget in October 2021 was the fact that almost half of expenditure that qualifies for relief is used to finance activities carried out overseas rather than in the UK. This is usually in relation to staff costs and subcontracted activity. From April 2023, companies will only be able to claim relief if R&D activity is performed by the third party within the UK or, in respect of externally provided workers, where they are paid via a UK payroll.

Pro advice. There may be some limited exceptions when the draft legislation is published. However, the report makes it clear that outsourcing overseas will not attract relief on the basis that it is cheaper than a UK alternative.

Digital age. All claims will need to be made digitally, set out the basis for the claim, and include advance notice to HMRC regarding the intention to make a claim. Claimants will also be required to disclose information about any third party that has advised them regarding the claim.

Simplification. In order to simplify the claims system, a number of further changes will attempt to address anomalies. The time limit for making a claim will double to two years, and an SME that becomes “large” will continue to qualify under the SME scheme for a transitional year.