R&D tax relief: Changes are coming

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

Datasets

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.