R&D tax relief: Changes are comingby
Reforms to R&D tax relief will allow deductions for datasets and cloud computing, focus the relief in the UK, and amend the claims process to reduce the incidence of abuse.
On 30 November 2021 HMRC released the policy paper R&D Tax Reliefs Report, which contains several interesting proposals.
Tax reliefs report
The proposals in the R&D Tax Reliefs Report follow announcements in the Budget to:
- extend qualifying expenditure to include data and cloud costs;
- direct support towards innovation undertaken in the UK; and
- target abuse and improve compliance
The cost of licence payments to acquire datasets for use directly in a qualifying R&D activity will be an eligible cost. These datasets must not be capable of resale by the company, nor can they have any lasting value or use beyond the R&D activity. Essentially, the dataset needs to be akin to a consumable item used in the R&D process.
There will also be restrictions preventing the cost of datasets qualifying where there is a right to sell or further distribute the dataset.
Cloud computing and software
The costs of cloud computing services that are directly used for R&D activities will become an eligible cost. This is expected to encompass costs that can be attributed to computation, data processing and software in respect of R&D activities.
It is intended that the rules will exclude costs in this category to the extent that they are attributable to overheads relating to servers and data storage.
I suspect that these two new categories of eligible expenditure are not going to be as broad as some would like.
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I am an independent specialist adviser on the taxation of innovation, advising companies and other advisers on areas such as R&D tax relief, Patent Box and Creative Industry reliefs, as well as IP tax issues more generally.
Formerly a Tax Partner with KPMG LLP (UK), I left in 2011 to establish Aiglon Consulting.