The Chancellor of the Exchequer, Rishi Sunak, has set out the UK Government’s latest spending plan in the Spring Statement. Although traditionally the Spring Statement is an update on the current state of the nation’s finances as well as future expectations, this year Sunak announced larger policies to help tackle the increased cost of living that everyone is experiencing.
The rising cost of living is not just a concern for individuals, but also businesses, since they too might struggle to meet higher energy, fuel, and supply costs. With costs increasing consistently, some businesses may look at reducing innovation and other investments as a cost-saving exercise.
With the UK arguably lagging behind other advanced economies when it comes to R&D investment, how does the 2022 Spring Statement tackle these concerns?
In the last Autumn Budget, the government announced that cloud computing and data would be eligible for R&D tax relief. Today it was confirmed that these costs, including data storage, will be eligible from April 2023.
The inclusion of data storage in this category will be a welcome addition, however full details will not be confirmed until draft legislation is published.
Changes to R&D Conducted Overseas
The chancellor’s statement reiterates the government's commitment to support innovation in the UK, ensuring that only UK businesses benefit from R&D tax relief. However, he also recognised that there are some cases where it is necessary for the R&D to take place overseas such as the following:
These two concessions don’t give much away, and there’s still scope for challenges from companies that have legitimate business structures with overseas entities, which could lead to further revisions.
Mathematics is now Included
The government has recognised the increased volume of R&D being undertaken which is underpinned by pure mathematics. The Spring statement announced an expansion of the qualifying expenditure to include all mathematics.
This reform is intended to support nascent sectors where the UK has a comparative advantage such as Artificial Intelligence, quantum computing and robotics while also supporting strong sectors such as manufacturing and design.
Upcoming Compliance Changes
In addition to making the scheme more attractive, the government will be looking to tackle the abuse of R&D tax reliefs, particularly in the SME scheme, ahead of the Budget in Autumn 2022. Previously the government announced in November 2021 the creation of a new cross-cutting HMRC team focused on tackling abuse of these reliefs and will be looking to expand on this in the future.
Continued commitment to invest £20bn in R&D by 2024-25
The Chancellor launched a new ‘Tax Plan’ with three key ambitions based around the themes of capital, people and ideas. This included the ambition to create the conditions for higher UK economic growth through greater investment in Research and Development to help foster innovation, creativity and scientific breakthroughs.
It also included a continued commitment to increase R&D spending to £20 billion a year by 2024 – an increase of £5 billion on current levels.
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Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax relief regime, including a cut to the deduction and credit rates for the SME scheme, the R&D tax credit. The rate of the large company scheme, the R&D expenditure credit (RDEC) will be increased from 13% to 20%, […]
HMRC has recently set out its upcoming reforms to the R&D Tax Relief schemes that will form part of the next Finance Bill. Alongside some minor legislation updates to address anomalies in the schemes, the reforms as they stand will cause four major changes to the schemes. The first of which could catch out start-ups, […]
If your company has been making a loss, it’s still worthwhile making a claim for R&D tax credits. This is sometimes misunderstood with people thinking that a company needs to be profitable to benefit. In fact, applying for R&D tax credits as a loss making company might be the most beneficial way to get the most from the scheme.