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Rishi Sunak’s 2022 spring statement promised to reform the UK’s R&D tax credits to be more generous to businesses. Which sounds like great news for small and medium sized enterprises (SMEs). But how does the government plan on doing this and how will it benefit your business ?
Changes in R&D tax credits
As it’s in the early stages the exact details of the planned reform are limited. However we know the reform is planned for April 2023. The Treasury will likely be following responses from its latest R&D tax reliefs report.
The spring statement confirms, what was said in the 2021 report, from April 2023 all cloud computing costs relating to R&D including storage, will qualify for relief.
The scope of reliefs will expand from April 2023 to cover data cloud computing and pure maths. This is to boost AI, Robotics, manufacturing and design sectors as they excel so well in the UK.
The government believes these reforms will allow better value for money for tax payers while being more generous to businesses.
The government plans to support the increasing volume of R&D based on mathematical advances.Consequently, the definition of R&D for tax reliefs will expand to clarify that pure mathematics is a qualifying cost.
Overseas R&D tax credits :
The government continues to refocus support in the direction of innovation in the UK.
This is met with multiple concerns from businesses using contractors, assets and facilities overseas as part of their R&D. Especially, when the resources needed aren’t in the UK.
The government has clearly recognised that there are cases where it is necessary for the R&D to take place overseas. Therefore, it will pass laws enabling expenditure on overseas R&D activities in the following situations:
- Material factors such as environment, population, geography or other conditions that are not present in the UK but are necessary for research, e.g. dessert research
- Regulatory or other legal requirements that have to take place outside of the UK, e.g. clinical trials
For larger companies the government is considering increasing the generosity of the Research and Development Expenditure credit (RDEC) scheme. These efforts are to boost UK R&D investment, re-balance the schemes and make RDEC more competitive, per the government.
The government made it very clear this increase in generosity will not be at the expense of stricter rules for SMEs .
The RDEC scheme is available to large companies employing more than 500 staff, or have a turn over of more than £100 million and more than £86 million in gross assets
Advance notice of a R&D claim:
Another proposal the government made is to make companies inform HMRC in advance that they plan to make a R&D claim.
In many cases this isn’t possible particularly for a new company as it is not always clear that a claim can be made before work has been completed. Therefore this measure will penalise companies that have incurred R&D expenditure but were not aware of these rules.
Many businesses hope that the government doesn’t go ahead with this change as many companies will miss out on claiming relief.
A draft legislation has been promised for this summer which will provide more in depth details.
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 Adviser today.