The Autumn Budget and Spending Review 2021 was recently released, providing a look into the budget so far and the expected investments going forward. With regards to investment into the nation’s innovation, the review states:
The Autumn budget highlights plans to invest in growth and reawaken innovation by increasing public R&D investment by providing £20 billion across the UK each year. Rishi Sunak, Chancellor of the Exchequer, confirms this plan is in line with their target to increase R&D investment to £22 billion but with a rather large caveat, stating:
“But in order to get there, and deliver on our other priorities, we’ll reach the target in 2026-27 – spending, by the end of this Parliament, £20bn a year on R&D.”
This target date was initially set for 2024/2025.
Expanded Qualifying Costs in R&D
While the target date has been pushed back, there is some good news. The scope of reliefs covered under the R&D tax reliefs has been officially expanded to include cloud computing and data costs, a cost category that was previously overlooked. This development serves to advance the credit to support modern research methods.
Is R&D Occurring in the UK?
The spending report highlights another issue which impacts the budget. Companies claimed UK tax relief on £48bn of R&D spending but UK business investment was around half of that, at £26bn. This means the UK is subsidizing billions of pounds of R&D that is happening abroad.
Following this revelation, Sunak said that there will be greater incentives to perform domestic R&D, bringing innovation back to the UK, starting from April 2023, but has not identified what these incentives might be.
These territoriality restrictions may have unintended negative consequences. For instance, the life sciences sector often performs vital elements of their R&D outside of the UK. The IP of the drug or product often still belongs in the UK, meaning the return on investment still benefits the region. However, if these activities outside the UK no longer qualify for tax relief, the cost may be too great a burden for companies to bear.
Who We Are:
Swanson Reed is one of the UK’s leading R&D Tax Relief consultancies. We manage all facets of the SR&ED tax credit program, from claim preparation and audit compliance to claim disputes.
If you would like to find out more about how your business could benefit from R&D Tax Credit, contact a Swanson Reed R&D Tax Advisor today.