Spring Statement 2022: Some changes to the R&D tax relief scheme announced with more significant ones on the horizon

Today’s Spring Statement saw only refinement to the changes anticipated for R&D relief taking effect in April 2023.

Announcements last year were that relief was to be restricted to expenditure on UK R&D activities only. Following ongoing consultation, there are now exceptions to this proposal. Overseas R&D activities can still qualify where there are material factors necessary for the research that are not present in the UK, such as geography, environment or population or where regulatory or legal requirements mean the activities must take place outside the UK.

It was today also confirmed that all R&D related cloud computing and data storage costs would be qualifying for the relief, especially beneficial in data-heavy bio-medical research and, as a reflection of changing research techniques, costs in relation to pure mathematics were also clarified as qualifying for R&D purposes (potentially useful in AI research) where they had previously been excluded from the definition of R&D.

There was comment on improving the benefit of the RDEC scheme (for larger companies generally). The Treasury wants ‘bang for its buck’ and there is better evidence of the RDEC creating additional R&D activity in the UK. HMRC evaluations suggest that RDEC stimulates between £2.40-£2.70 for each £1 of tax relief claimed. The stats do not look good for the SME R&D relief scheme with that generating only 68p-£1.28 for every £1.

The government has pledged to “consider what more can be done to tackle the abuse of R&D reliefs, particularly in the SME scheme, ahead of Budget 2022…abuse of the R&D tax reliefs is an issue that must be tackled”

Draft legislation is expected this summer.