AUTUMN BUDGET 2021 – UPDATE TO R&D TAX RELIEF SCHEMES

Date Added | December 14, 2021

The Autumn Budget and Spending Review was presented to Parliament on Wednesday 27 October 2021. Most of the updates were as expected as they were made against the context of a recent R&D consultation. Here are a few things you need to be aware of.

How has the recent Budget impacted R&D?

Sunak announced that the government will funnel “unprecedented funding” into innovation, increasing R&D spending to £20bn a year by the end of this parliament in 2024. This was down from his previous commitment of £22bn per year but is set against the other priorities that emerged during the pandemic. The target of £22bn has now been pushed to 2026-27 spending.

R&D tax credit rules to include cloud computing and data

There was an announcement that HMRC definitions of R&D will include cloud computing and data. The government hopes that this modernisation will ensure that the tax reliefs better incentivise cutting edge R&D methods which rely on vast quantities of data that are analysed and processed via the cloud. 

From April 2023 R&D tax relief to be used to subsidise investment in the UK only

The government proposes to limit relief for payments to subcontractors, in both R&D tax relief schemes, to claims where the subcontracted activities take place in the UK. This will help ensure that the spillovers from the research, such as improved skills, benefit the UK. 

Similarly, where companies claim for expenditure on externally provided workers (EPWs), these will in future be restricted to EPWs who are within UK PAYE/ NIC.

How will HMRC target its compliance work?

To protect the integrity of the R&D tax reliefs the government has proposed administrative changes that mean companies will need to:

  • Provide more information when making claims
  • Make claims digitally
  • Notify HMRC in advance of the intention to claim

What do these changes mean for Accountants?

Are your clients receiving R&D tax advice and where is that advice coming from? If it isn’t something that you are aware of then it could be that your clients are putting themselves at risk from poor compliance to the rules.

If one of your valued clients finds themselves under an HMRC enquiry they will certainly come to you for help. Dealing with any HMRC enquiry could take up a lot of time and resources. It could damage your relationship with that client and there is the potential for reputational damage to your firm.

Many of the changes are being implemented to protect the integrity of both R&D tax relief schemes. There should be no place for poor compliance and accountants should make sure that their clients are compliant in their claims and the advice they are taking.

If you would like to find out more or speak to 2020 R&D Tax Services about any of the above, complete your details on this page and a member of the team will be in touch.