R&D tax reform – What does it mean for my business?
Following the Chancellor’s Autumn Budget announcements on R&D reform, we now have more detail on the proposals.
In summary from 1 April 2023:
Non-UK Costs
R&D qualifying expenditure will be refocused on domestic expenditure through the prohibition of:
- Overseas subcontractor costs, (including contributions for independent R&D of an overseas qualifying body; and
- Overseas externally provided workers.
Data and Cloud Computing
The qualifying cost categories will be expanded to include
- Licence payments for datasets where the costs are incurred solely for a qualifying R&D project and where the data is not available for subsequent reuse or resale; and
- Cloud computing costs that can be attributed to computation, data processing, analytics and software. Costs in relation to servers or storage will not qualify.
Abuse and Compliance
To counter perceived abuse of the R&D regime from April 2023:
- All claims to the R&D reliefs will have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online);
- More detail must be included in the digital filing, e.g. what expenditure the claim covers, the nature of the advance sought, the field of science or technology, the uncertainties overcome;
- The R&D claim will need to be endorsed by a named senior officer of the claimant company;
- Companies will need to inform HMRC, in advance, that they plan to make a claim; and
- R&D claims will need to include details of any agent who has advised the company on compiling the claim.
These are far reaching measures, designed to tackle the root abuse of the R&D regime, however, the government hopes that it will have a limited impacted on compliant businesses.
Next Steps
Much of the challenges faced by businesses will be how to make the changes work in practice. HMT recognises this and has requested feedback by 8 February 2022.
BDO will be submitting a response and would welcome the opportunity to discuss the practical implications of the reforms with you.
In the meantime here are two tips when reviewing your current claims:
- Consider whether you could be making R&D claims in overseas territories where you have R&D centres located – BDO has a network of international R&D experts on hand to assist with this
- Model the high level impact of the proposed changes on your R&D claims so that you can start messaging this to key stakeholders and build it into your budgets and forecasts – again we are at hand to help
To arrange a discussion about the impact of this with our R&D team get in touch here or speak to your local BDO contact.
