While changes to the R&D tax relief programme in the Spring Budget may at first appear subtle or somewhat immaterial. RDP believes that the way HMRC will now focus on and administer R&D tax credit claims. Which will be significant and impact every company making an R&D tax credit claim.
The following details highlight key changes to the programme:
Data and Cloud Computing Costs
Data and cloud computing costs, including storage, will be an eligible R&D expenditure after 1 April 2023. This will include:
- Licence payments for datasets; and
- Cloud computing costs that relate to computation, software and data processing.
Pushing the Boundaries
We believe that the biggest change to the R&D tax credit programme will be how HMRC will manage companies that “push boundaries” as to what type of work is eligible to be claimed as R&D. Comparing the UK with other international R&D tax credit programmes. HMRC has historically carried out very few queries to challenge or monitor R&D tax credit claims.
A cross-cutting HMRC team will now be in place to tackle the issues pertaining to these boundaries. As well as a focus of fraud submissions.
As a result of these changes, claimants will be required to do the following:
- Show additional detail as to how projects meet R&D eligibility rules, and prescribed forms will need to be completed and submitted (implementation of this is pending).
- A new portal is being set up by HMRC. Which means that first time claimants and companies that have not filed a claim within the past 3 years will have to register their claim through the HMRC portal. Companies that have not filed a R&D tax credit claim within this time will need to inform HMRC, in advance, that they plan to make a claim. This will need to be done through the portal within 6 months of the end of the period to which the claim relates.
- A senior officer of the company will have to attest, in writing, the validity of the R&D tax credit claim.
- If a claimant uses a consultant, such as RDP, to assist and prepare their R&D tax credit claim. Then the details of the consultant will have to be included. It will be important for claimants to work with a professional and reputable firm to ensure all projects/costs are eligible to claim.
Expanding the Qualifying Fields of Science
Typically, the eligible fields of science in which the R&D tax credit scheme falls are the “hard” sciences. Pure mathematics has been an excluded field of science in the past. This is quite strange in that pure mathematics underpins a large area of eligible R&D such as AI, Quantum Computing and Robotics. All mathematics will now be an eligible area of R&D after 1 April 2023.
R&D Work Done Outside the UK
It has always been somewhat surprising that the UK R&D programme permitted offshore work to be claimed as an eligible R&D expenditure. when we compare this to other international programmes. RDP works in 7 other countries, so we know the major differences.
It is no surprise that these costs will be eliminated subject to a few exceptions. The exceptions will apply if there are regulatory requirements or extenuating circumstances involved to carry out R&D work outside the country.
All of the above changes are going to significantly alter how claimants approach R&D tax credit claims. Since RDP sees history repeating itself, we have consistently advised and prepared our clients and contacts accordingly:
A Nagging Problem
A report issued by HM Treasury in 2021 had some interesting findings concerning the R&D tax credit programme. Essentially, the R&D tax credit programme seems to be achieving its goal as an incentive programme for large companies under the RDEC scheme. But is falling short as an incentive under the SME scheme.
In our opinion, the Spring Budget did not really address or come up with solutions to reform the SME scheme. However, mention was made that more reforms will be coming in the 2022 Autumn Budget, and we anticipate it will involve the SME scheme.
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