The Chancellor used the 2022 Spring Statement to announce that he is introducing a tax plan to create a stronger, more secure economy for the UK. This will also incorporate a reform of the R&D tax credits regime.
Limited details have been provided in respect of the reform, but the Chancellor did mention that he was going to work with businesses, ahead of introducing the changes in the Autumn Budget, so no doubt a further consultation is to be expected in the Summer.
Previous updates have already confirmed that the R&D regime is being updated to incorporate additional qualifying expenditure categories effective from April 2023:
- Pure mathematics has finally been included which is a win for businesses in the AI / quantum computing / theoretical space.
- Data storage is going to be allowed, alongside hosting and data purchase (where this is used for R&D).
We were previously advised that overseas costs could be excluded from the R&D regime to encourage the regime to be UK specific. Following feedback in a recent consultation, which we contributed towards, it has now been announced that overseas costs may not be excluded after all, as long as there’s a “material or regulatory requirement” for the work to be done overseas, which could include a UK skills shortage, amongst other considerations.
The Chancellor has today stated that they are looking at ‘re-balancing’ the schemes.
Firstly, by boosting the generosity of the RDEC (applicable to large companies and SMEs doing part-funded or fully-funded work).
Secondly, off the back of Rishi Sunak’s comments earlier in the year, our Head of R&D, Chris Knott, advised a couple of weeks ago that “some slightly concerning noises being made by Rishi Sunak. This was largely regarding the efficacy of the R&D tax credits regime, with particular criticism seemingly aimed at the SME scheme (£0.60 to £1.28 of additional R&D expenditure outlay by companies generated for each £1 given out as R&D relief) versus the large companies claiming under their (Research & Development Expenditure Credit) scheme (£2.40 to £2.70).” This was borne out today with the SME regime being specifically mentioned by the Chancellor in terms of a need to ensure it “delivers the best possible value for taxpayers”.
So, as Chris said in his previous article, there could still be a cause for concern for SMEs and there remains the possibility of a shake up in the SME regime, especially given that, additionally, the SME R&D tax relief abuse is now being specifically cited as a drain on the Exchequer. We have already been advised that 150 additional inspectors have been enforced to clamp down on fraudulent claims and as such we expect to see a rise in the number of enquiries being raised.
Now, more than ever, it is important that not only are you fully maximising your R&D claims, but you are also providing HMRC with sufficient supporting information to qualify your claim.
With limited information issued in respect of the reform today, we will continue to monitor any updates and will keep you fully-informed of any further developments. In the meantime, if you have any queries relating to any of the above, or you wish to discuss the risk of enquiry on your existing claims, please feel free to contact one of our R&D specialists.
