The Chancellor has recently completed his consultations and will now make changes to the enhanced research and development (R&D) tax reliefs, taking effect on the 1st of April 2023 ...
When a company subcontracts R&D activities, tax relief is generally only available where the work is performed in the United Kingdom. For externally provided workers, they must be paid via a UK payroll.
In both cases, this is to ensure enhanced relief is correctly targeted at growing innovation within the UK itself and to avoid incentivising R&D being done overseas. Any changes the Chancellor introduces may reduce the value of R&D tax relief for businesses who access a global knowledge base, such as startup companies spun out from academia.
It seems that the proposed changes assume that businesses have the resources to move towards UK-centric resources, but this may not be the case for many. Key barriers include:
- a lack of available UK resources resulting from local skills shortages, particularly in R&D-intensive sectors such as engineering, software, and manufacturing.
- Brexit caused many workers to return to the EU and deterred migration into the UK from the EU, exacerbating the skills shortage.
However, the Government has announced that R&D activities overseas can still qualify where R&D cannot take place in the UK due to geographical, environmental, regulative or population reasons. For example, deep ocean research is impossible in the shallow waters that surround our country.
The Government has announced they are pressing ahead with expanding the scope of qualifying costs to include data and cloud computing and has relented on excluding the storage element.
So, definitions are still to be finalised and the legislation isn't on the statute books right now, but I believe we can be confident of what R&D tax relief will look like from the 1st of April 2023.
Now, could be the time to start thinking of how your business can benefit from the new R&D tax relief regime in 2023.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.