Spring Statement: R&D tax relief changes are coming

The eagerly awaited Spring Statement was delivered by Chancellor Rishi Sunak on the 23^rd March 2023 against a cost of living crisis and spiralling inflation.

For companies across the UK, R&D tax relief has been a key way of funding plans for innovation and growth. The R&D Tax Credits scheme, subdivided into the SME scheme and the R&D Expenditure Credit (RDEC), means that companies carrying out eligible R&D expenditure can claim as much as 33% of the costs back from HMRC. This is either as a Corporation Tax rebate, or as a cash lump sum where a company is loss-making.

A generous tax incentive indeed, any company of any size and in any industry can apply for R&D Tax Credits to help with the costs of further innovative projects.

We’re not just talking tech companies and lab coats here either. Essentially, as long as a financial risk was taken in undergoing some kind of scientific or technical research, R&D Tax Credits are likely to follow. For many companies, such research occurs automatically as the result of launching new products, services or processes, or in significantly enhancing existing ones.

There has been fervent speculation that Chancellor Rishi Sunak was going to increase RDEC relief for larger companies by slashing the generosity of the SME scheme. Although this hasn’t come to pass, the good news for companies claiming under RDEC is that the government is looking at increasing the generosity of the relief.

At this point you may want to familiarise yourself with the differences between the SME R&D Tax Credits scheme and RDEC.

What does this mean for small businesses?

The big question is whether the government’s increase in the generosity of the RDEC ends up being balanced by a reduction in the benefit for companies using the SME scheme. We simply don’t know if one will lead to the other at this point.

A wider review of UK R&D reliefs continues with more announcements expected to be made in autumn this year. In the meantime, there are likely to be further efforts in tackling abuse of the relief which the government is keen to stamp out. Watch this space.

Cloud computing costs

Before the Spring Statement was announced, there was already talk of allowing data costs to be included in an R&D tax relief claim where the data is used in the R&D process. However, Sunak has now revealed that the government plans to go further, so that all cloud computing costs associated with R&D are now eligible. This means that storage costs for data, for instance, will also qualify.

Mathematical advances

It appears that the definition of R&D itself is also being tweaked so that advances in pure mathematics will also now attract R&D tax relief. At the moment, mathematical advances in themselves are not included from the definition of R&D in the Guidelines on the Meaning of R&D for Tax Purposes, however this is what’s set to change. Businesses working on cutting-edge projects in the world of AI and robotics for example are sure to welcome this.

U-turn on R&D costs incurred overseas

Further good news is that the Government appears to have listened to businesses who were less than impressed at its intention to fully exclude costs incurred overseas from UK R&D tax relief claims.

It had previously been revealed that the government was looking to restrict the availability of R&D relief relating to R&D activities outside of the UK. However, the Chancellor has now announced that, following responses to the original plans, there will be certain circumstances when R&D that had to be carried out abroad can in fact be included.

Therefore, R&D costs relating to projects abroad can form part of an R&D tax relief claim if:

• There were factors such as environment, geography, population or other conditions that are not present in the UK and which were essential for the research. Deep ocean research would be an example.

Or:

• Regulatory or other legal factors meant that it would have been impossible to undertake the R&D in the UK. An example would be certain clinical trials.

"At Myriad, we are pleased to see the government will not be fully excluding R&D activities overseas from R&D tax relief claims", said Barrie Dowsett, CEO of Myriad Associates.

"It is our belief that to have done so would have discouraged collaboration with many overseas enterprises that provide essential product, process and regulatory services to support advancements in science and technologies".

Draft legislation is expected to be published this summer with changes coming into effect from April next year. We await to see what measures eventually emerge.

Let the R&D tax experts at Myriad help you build and maximise your R&D tax relief claim

Latest statistics show that a whopping £7.4 billion was claimed in UK R&D Tax Credits to the year ending March 2020. But there are still far too many companies missing out on R&D tax relief they’re rightfully owed, not least because of the scheme’s complexity.

Myriad Associates has been filing R&D tax claims for our clients for over a decade. Our seven-star customer service, low fees and right-first-time approach make it simple to claim the cash your company deserves.

"I would definitely recommend Myriad Associates because they’re excellent at what they do. I would also encourage other businesses to educate themselves on Myriad’s R&D tax relief services, number one, but also to look into the other services and benefits they offer." - Joshila Makan, CEO, Worldwide Chain Stores Ltd.

To find out more about the incentive and if your R&D project is eligible, speak to the Myriad Associates team on 0207 118 6045 or drop us a message.