The UK tech industry already benefits considerably from the current R&D tax relief scheme, but changes planned from April next year should help the sector access even more support.
For a long time now, the tech industry has called on the Treasury to expand the scheme to cover common areas of expenditure, which have, until now, been excluded from claims.
Chief among these are the costs of cloud computing and data use. This is an important change considering the sudden adoption of many cloud-based technologies.
According to TechUK, evidence shows that 51 per cent of UK business leaders believe investment in cloud computing “saved” their organisations during the pandemic, while 60 per cent of respondents plan to increase and scale their cloud usage in future.
Given the demand for data-driven services it is good to see that from April 2023, businesses will be able to include the costs of purchasing data for R&D projects or using cloud computing services.
However, HM Revenue & Customs (HMRC) is still expected to provide clarity on the issues of usage and residual values in its upcoming guidance.
Amongst the other issues to consider is identifying cloud costs that relate to an R&D project. Many businesses use the same cloud services throughout their operations, so apportioning specific costs to R&D may be challenging.
Other qualifying costs for cloud computing costs may also be an issue, as it has been revealed that the costs of ‘data storage’ will not be allowed.
Again, further clarity on what these rules cover should be provided in HMRC’s guidance this year.
Give with one hand, take with another
Although help with this expenditure is useful, under the new rules, the costs of overseas workers will soon not qualify for UK R&D relief.
The Government has indicated that it does not want to introduce a rule that discriminates against businesses that cannot practically carry out research in the UK, but it doesn’t want to prevent the offshoring of R&D.
A list of exemptions is being worked on to ensure that British businesses can still access overseas expertise without being penalised.
These exemptions will be tied to environmental, geographical, legal or regulatory reasons. There may also be an exemption for the use of niche and/or specialist skills, such as obtaining advice from world-leading experts in a particular field.
The Government also needs to consider the international structures and connections of businesses carrying out R&D.
If a blanket ban was imposed, UK groups with overseas subsidiaries conducting work on a UK project may not be able to make a claim, despite the innovation still benefiting the main UK parent company.
Please note that there are delays on R&D claims of up to 4 months.
Here to help
Further details of these new changes should soon be made public, but if you are likely to be affected then it is important that you seek help.
Please contact us to find out more about our services for the tech sector.