Upcoming changes to R&D Tax Relief

As a result of the 2021 Autumn Budget – and outcomes in recent Tax Tribunal cases – there are going to be a number of changes to the R&D Tax Relief scheme that any benefitting business will need to understand. Some of these changes could produce advantages while others might be more difficult to navigate, depending on your business. The purpose of R&D Tax Relief has always been to create the opportunity for organisations to make tax savings when it comes to innovation – this is what you need to know about how to do this, going forward.

What are the changes being made?

As of Autumn 2023, we can expect to see a number of changes made to the R&D Tax Relief system. The two that are likely to have the biggest impact are:

1. Cloud computing and data costs become a qualifying expense – This is going to be a positive change for many businesses as it will mean that these costs can now form part of a claim. Tech and media companies are likely to benefit in particular from this expansion but any organisation will be able to use this to their advantage. For example, if your business is paying licenses for cloud computing this can be included in your claim from 1st April 2023.

1. Businesses conducting R&D activities overseas will face new restrictions – Currently, overseas R&D costs that are charged to a UK claimant company will qualify for R&D Tax Relief. However, as of 1st April 2023, only R&D activity that takes place in the UK will be eligible. This has the potential to have a wide-ranging impact, especially for those companies that are leveraging R&D centres in other parts of the world, such as Asia and Europe, and then charging costs – such as engineering – back to a UK company. For many businesses, this would make up a significant proportion of the main claim and when the change comes into force it will mean a big drop in the value of the claim.

There is no doubt that R&D Tax Relief is valuable, so valuable in fact that for some organisations there may be some benefit in considering moving R&D activities to the UK in order to continue taking advantage of the scheme. This is ultimately going to be a commercial decision that depends on the figures involved in overseas R&D. Moving activities to the UK would mean that eligibility under the scheme continues but there is also a whole other range of costs and challenges to be considered in doing that, from new hires and staff training as well as tax and legal factors. Whether it’s worth moving R&D activities to the UK is going to be an individual decision for businesses.

When the new rules come into force next April there will be some companies that benefit from the changes to R&D Tax Relief and others – especially those conducting activities overseas – that may need to rethink their R&D strategy.

SPRK Capital can help you find an advisor to figure out if you’re still eligible for R&D tax relief. If you are, a SPRK Advance can give you immediate access to your R&D tax credits.

Contact us to get in touch with a member of our team today.