Changes to UK R&D Tax Relief in 2023

Following initial announcements in the 2022 Spring Statement, draft tax legislation has been published today which includes changes with respect to R&D tax relief for accounting periods beginning on or after 1 April 2023.

Datasets and Cloud Computing / Pure mathematics.

Following consultation, the government has listened to stakeholders and the costs of datasets and cloud computing associated with R&D, will qualify for relief.

To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will also be expanded by clarifying that pure mathematics is a qualifying cost.

Refocus towards UK innovation

The government remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs.

Broadly this means that the expenditure on subcontracted activities or externally provided workers situated outside the UK will not be eligible expenditure when claiming R&D tax relief.  There are some limited exceptions to these rules so that expenditure on overseas R&D activities can still qualify where there are:

• Material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep ocean research
• Regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials.

The exemptions will not however include cost or workforce availability.

Changes to the R&D claim process

Some of these changes formalise best practice but others are new.

As well as it being compulsory for the R&D claims to be made digitally each claim will need to be endorsed by a named senior officer, (e.g director) of the Company.

Some companies may also need to inform HMRC in advance that they plan to make a claim within 6 months of the end of the period to which the claim relates and the claims will need to include the details of any agent who has advised the company on compiling the claim.

Other consequential measures

There are also a number of other measures to address anomalies in the existing rules – several of which are helpful.

Margaret Savory, Tax Partner at James Cowper Kreston comments, “Whilst many of the measures were pre-announced, we now have more clarification on the details. There will be winners and losers and I would urge all companies to review their circumstances to see how they may be impacted by the proposed legislation."

If you have any question with regards to the topics related to this article, please get in contact with Margaret Savory or your usual James Cowper Kreston contact.