Breaking news: R&D tax relief reforms announced

Today - 21^st July 2021 - is Legislation Day (L-Day). This is when the government publishes draft legislation for the forthcoming Finance Bill 22/23 that lays out how annual taxes will be renewed. It also sets out how any new tax proposals will be delivered and how administration of the tax system will be maintained.

The government is committed, where possible, to publishing most tax legislation in draft for technical consultation before the relevant Finance Bill is laid before Parliament.

The final contents of Finance Bill 2022-23 will be subject to confirmation at Budget 2022.

Each measure comprises:

• A tax information and impact note (TIIN) which sets out what the policy seeks to achieve and a summary of the expected impacts
• Draft legislation
• An explanatory note which provides a more detailed guide to the legislation

What does this mean for R&D tax relief?

The are three key R&D tax relief reforms that have been announced. They apply to accounting periods beginning on or after the 1st April 2023.

Extending the scope of qualifying expenditure

This now includes datasets/data licences and all cloud computing directly related to R&D. It’s a change that has been welcomed.

Refocusing the relief towards innovation taking place in the UK

Relief for subcontracted work and the costs of EPW’s will be limited to UK activity only. However, there are some narrow exceptions:

• Where factors such as geography, environment, population or other conditions that are not present in the UK are required for research (for example, deep ocean research), and,
• Where there are regulatory or other legal requirements for certain activities to take place in specific territories (for example, clinical trials).

The exemptions will not include cost, or workforce availability.

This will impact companies using overseas contractors, therefore companies may wish to consider moving their development team to the UK. Do the R&D benefits outweigh other commercial factors?

Tackling abuse and improving compliance

All claims are now expected to be made digitally. Claims must also include a breakdown of costs and a description of the R&D taking place. At Myriad we know this is best practice so already do this.

Each claim must be endorsed by a senior officer of the company and include details of any agent who has advised the company on compiling the claim.

Companies will also need to inform HMRC, in advance, that they plan to make a claim. This should be done using a digital service, within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to pre-notify.

We welcome higher levels of scrutiny from HMRC in order to tackle abuse of the scheme which has become more prevalent in recent years.

You can see the proposed R&D tax relief changes here.

Supporting documents have also been published:

https://www.gov.uk/government/publications/research-and-development-tax-relief-changes/research-and-development-tax-relief-reform

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1092544/Explanatory_note.odt

Find out more about R&D tax relief and start your claim today

Has your company undertaken any innovative R&D work lately that sought to advance science or technology? Maybe you've been working on a new cutting-edge product, service or process. If so, you could claim back up to 33% of eligible R&D costs back, thanks to R&D Tax Credits.

Find out more about who qualifies and how to claim on our R&D Tax Credits page, or call one of our friendly expert team on 0207 118 6045. Alternatively, drop us a message and we'll get back to you.