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R&D Tax Reliefs - New Government report published

2 December 2021

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Published on 30 November 2021. After several rounds of consultations on aspects of R&D tax relief and the announcement in the Autumn Budget of the reforms of the R&D system, the Government has published a detailed report on R&D relief. It welcomes comment with any responses to be made by 8 February 2022.

Below are the key areas covered which will take effect from 1 April 2023.

Data and cloud costs

The following new categories of expenditure will be brought into scope:

  • licence payments for datasets; and
  • cloud computing costs that can be attributed to computation, data processing and software

Focusing on innovation in the UK 

The Government proposes to limit relief for payments to subcontractors or externally provided workers, in both schemes, to claims where the subcontracted activities or workers payment of PAYE/NIC takes place in the UK. The Government argue that this will help ensure that the spill-overs from the research, such as improved skills, benefit the UK.

Note that the Government is interested in views from stakeholders on whether there is a case for any narrow exceptions to allow claims on some overseas activity.

Administrative changes to improve how HMRC can target its compliance work

To protect the integrity of the reliefs the Government proposes that in future, companies’ claims should:

  • provide more information including an endorsement from a senior officer in the company and the name of any agent providing R&D advice
  • all be made digitally and
  • be notified to HMRC in advance. 

Whilst welcoming the inclusion of some aspects of cloud computing and data, Margaret Savory, Tax Partner and R&D specialist, commented that one of her main concerns was that  life science companies would be unfairly penalised by this restriction. She hoped that the Government would introduce an exception for bona fide clinical trials (which are often run globally). She also felt that many of the compliance changes proposed were what “good practice” should look like already and there shouldn’t be too much additional burden on those companies and advisers already operating to a high standard.

James Cowper Kreston will be canvassing opinions of our many clients for whom we provide assistance in making R&D claims in order to give feedback to HMRC. If you would like to get in contact with our R&D team please email msavory@jamescowper.co.uk.

Please click here for a link to the HMRC’s report.