HMRC has published draft legislation to amend the R&D tax reliefs regime following a consultation that began in 2020. The changes are due to come into effect on the 1st of April 2023 ...
- Data sets, cloud and pure maths
Categories for qualifying expenditure extend to include data sets and cloud computing. It's been a while coming and will be welcomed by many businesses, especially those in the tech sector. Pure maths projects have been removed from the current exclusions.
UK Innovation only
R&D must be undertaken in the UK. This means that any workers must be paid via a UK payroll and any activities subcontracted to third parties should be to UK businesses with the work carried out here.
Work subcontracted abroad can still qualify, but only when geographical, environmental, social conditions, legal or regulatory requirements mean the work cannot be carried out in the UK.
So, for example, deep sea research obviously can't be done here, but you can't outsource abroad simply because of the cost or availability of workers to carry out the work. Outsourcing abroad must be a necessity, rather than a convenience.
Tackling abuse
Several changes to the R&D Tax Reliefs claims submission process will be introduced, including:
- claims must be made digitally
- the categories of qualifying expenditure incurred should be disclosed and brief details of the R&D activities provided
- claims must be endorsed by a named senior company officer
- companies must inform HMRC in advance of their intention to make a claim within six months of the end of the accounting period to which the claim relates
- details of any agent that has advised the company in making the claim must be provided
It is clear more needs to be done to prevent substandard R&D Tax Relief claims from being submitted, and I support targeted efforts to crack down on abuse of the system. However, the potential consequences of this particular new rule could be a bitter pill to swallow for start-ups and fledgling companies.
The legislation includes measures to address anomalies and unforeseen consequences, ensuring R&D Tax Reliefs operate as intended. I feel these changes will have the desired effect, but I wonder what opportunities have been missed for more wide-reaching reforms.
R&D Tax Reliefs do remain fit for purpose, but with the current political turmoils, could there be more reforms to come.
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