Given the recent wide-ranging consultation on R&D tax relief, it was probably inevitable that reform of the R&D tax relief schemes (now over 20 years old) would be announced in the Chancellor’s Budget on 27 October 2021, although these announcements were headline only with more details to follow.
Firstly, the good news – up until now only expenditure on software licences can be included in a claim. This will be widened to include data and cloud computing costs.
Less welcome is the announced intention to restrict R&D relief to UK based activities only. Apparently other major technology countries (such as Australia and the USA) only incentivise their own and not overseas R&D expenditure (which can currently be included in a UK claim). According to Margaret Savory, Tax Partner and R&D specialist at James Cowper Kreston: “These changes may potentially affect many businesses who undertake part of their R&D overseas. Many of my tech-based clients cannot find the necessary skill set in the UK and therefore have no option but to get the work undertaken overseas. I can also think of companies in the biotech sector who run clinical trials in multiple countries. R&D tax relief has proved valuable to these UK- based companies who are developing UK- IP, but in a global context. It will be a shame if they lose relief. However, we don’t have all the details yet, so it will be interesting to see if the effect on these industries has been considered.”
The Government is also concerned about fraud and continued abuse of the schemes. Measures will be introduced to tackle abuse and improve compliance. “This is to be welcomed” Savory commented “as Chartered accountants and chartered tax advisers we take our professional standards seriously and work closely with our clients to ensure that they have robust R&D claims that are compliant.”
Find out more about the schemes available here: https://www.jamescowperkreston.co.uk/downloads/r-and-d-tax-brochure.pdf