There has been a lot of chatter on Robson Laidler’s website and social media regarding R&D and the changes that have recently taken place. Whilst these changes have been notable, they are not exactly radical to the point where you need to rethink your entire R&D strategy. However, the additional changes suggested to take place on the 1st April 2023, might well do.
Ignoring any announcements in relation to the R&D consultation last year, there are three main areas to consider:
- R&D tax credits on oversea activities
- Claims for cloud and data expenditure
- Tackling abuse and improving compliance
Overseas Activities
Historically, overseas qualifying R&D costs that are charged to a UK company could be claimed as part of their tax credit calculation. However, from April 2023 the R&D activity itself must happen in the UK itself in order to qualify for the tax relief. Thus, any payments to overseas entities (connected or unconnected) could not be included in the claim.
These means that any subcontractors used (either as part of a SME or RDEC claim) would need to be UK based, payments to Qualifying Independent research organisations (RDEC only claims), such as Universities or Health Bodies, would need to be for activities within the UK, and externally provided workers would need to be paid through a UK payroll.
However, there are a couple of exemptions laid out, which are: material factors such as geography, environment or population are not present in the UK and are required for research (for example, deep ocean research), or regulatory or legal requirements mean activities must take place outside the UK (for example, clinical trials).
In any case, this could have a material effect on a company’s claim if they have offshored key R&D functions.
Cloud & Data Expenditure
At the moment, cloud computing and data costs fall outside of the scope of qualifying R&D expenditure and cannot be claimed. However, this will change from April 2023.
This was long overdue as there has been a growing trend of increased innovation in cloud-based solutions, where hosted and data storage are a requirement in order to fully develop projects.
This means that any rental costs associated with cloud computer storage space or data costs can be included in future claims.
Tackling Abuse
Building on the R&D PAYE cap of April 2022, HMRC are planning on introducing stricter measures from next year.
Although these ideas have not been fully formed or explained, they include:
- Digital submission of all claims
- More details behind these claims to substantiate them (unclear precisely what this means and in what format)
- Companies will need to inform HMRC in advance that they plan to make a claim (unsure if this is on a project-by-project basis or prior to the financial year end etc.)
- Each claim to be endorsed by a named senior officer within the company
- Claims will need to include details of any agent who has advised the company on preparing the claim.
What this might indicate is that HMRC are looking for evidence of pre-emptive research and development which has been planned out ahead of time as opposed to pulled together at the last minute as a convenient tax planning tool.
Despite the picture not being fully clear, this is a fantastic opportunity to move your R&D recording away from the “once a year”, retrospective model towards a more proactive approach.
To talk about this more, contact Robson Laidler’s R&D specialist Jack Spoor at jspoor@robson-laidler.co.uk