Autumn Budget 2021 – what’s new in R&D tax relief?
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Here at WhisperClaims we made sure to listen to the Chancellor’s budget speech last week, and were pleased to see that it contained a few tantalising announcements related to R&D – changes to allowable software costs, the stopping of relief for R&D carried out abroad and further work in the pipeline to prevent abuse of the scheme. Detail was a bit lacking on all of these, but here’s what we know so far!
Expansion of allowable software costs
In March, HMRC published the results of their consultation on software costs in R&D, which made it very clear that the entire industry felt that the rules on software costs were outdated. Up until this point only revenue costs for installed software were allowable, which excluded cloud computing and data costs. Given how most companies now operate, this prevented many companies from claiming the costs of software used for R&D purely because it was cloud-based, so we’re very happy to see this change coming in.
R&D carried out overseas
Up until now, any and all subcontracted R&D and externally provided worker costs were allowable, as long as the work carried out met the criteria. This meant that a UK company could outsource all of their R&D to overseas companies and still claim R&D tax relief on these costs. The Government wants to encourage R&D spending within the UK to increase the benefit to UK business of the R&D tax relief scheme, so will be setting out proposals to ‘refocus the reliefs towards innovation in the UK.’ This is likely to be brought in from April 2023, but there is currently no further detail as to what form these changes are likely to take.
In March HMRC launched a wide-ranging consultation on the UK R&D tax reliefs, which in part focussed on the current issues of abuse and lack of compliance within the R&D tax relief sector. On the back of this, the government has announced that it will set out plans to tackle abuse of and improve compliance with the R&D tax reliefs later in the autumn.
What does this mean for your clients?
At the moment, it’s hard to say for sure! None of these changes have made it into the legislation yet, and there’s no detail available on what form these changes will take. HMRC have informed members of the R&D Consultative Committee that further details will be announced later in the Autumn, so we’ll keep an eye out and update our advice as soon as we can.
Rest assured, any changes to the scheme will be reflected in both our app and in our support as soon as we get the details. One thing is for sure in the meantime, and that’s that our focus on working with the right firms and providing them with the best possible tools and support is already helping the market to address some of the issues of compliance and abuse that HMRC are concerned with. If you need any help with your R&D claims process, especially where you are looking to bring a service in-house and avoid using third party consultants, or you are looking to scale your existing operation, get in touch!