Yesterday, chancellor Rishi Sunak unveiled his roadmap to recouping the UK’s economy.
Reforms to our nation’s spending come at a pivotal time, as we continue to combat the effects of the COVID-19 pandemic.
Within the Autumn Budget were several changes set to impact Research & Development (R&D). The previous commitment of a £22bn government spend on R&D investment by 2024-25 has been cut by £2bn – Sunak announced that this goal will be reached two years later than planned, by 2026-27.
Despite this, the chancellor assures that innovation will remain a focus point for UK spending and acknowledges that high-growth businesses are a driving force behind Britain’s regeneration. Though lower than first promised, the £20bn R&D spend is set to be its steepest cash boost in history.
Specific reforms have been made in the world of R&D Tax Credits so that the benefits of this generous scheme are captured more effectively.
Here are the main takeaways from the autumn budget announcement in relation to R&D Tax Credits:
1. Qualifying R&D expenditure will be expanded to include data and cloud computing costs.
The government announced that cloud computing and data expenditure will now be classified under eligible R&D costs. This decision is aimed at ensuring the R&D process is reflective of modern innovation and reinforcing the UK’s status as a science superpower.
2. The benefits of R&D Tax Credits will be recaptured from overseas.
In 2019, UK companies claimed £47.5bn in R&D Tax Credits, but businesses only carried out £25.9bn worth of privately-financed R&D within the UK. This disparity indicates the volume of companies able to claim for activity taking place overseas.
Sunak plans to close this gap and see more benefits of the R&D scheme felt within the UK by targeting domestic investment from April 2023.
As R&D Tax Relief is funded by the UK taxpayer, it’s clear to see why some sort of change is necessary. However, proper safeguarding must be put in place to make sure this reformation doesn’t restrict certain R&D sectors.
Penny Simmonds of Pinsent Masons argues that:
“Vital elements of UK life sciences R&D are often undertaken outside of the UK and can form an essential part of the development of the R&D itself – for example, when developing critical new drugs or vaccines it can be essential for clinical trials to be undertaken outside the UK to gain the necessary licensing approvals”.
3. Compliance within the R&D Tax Credits scheme will be improved.
Initially raised at the 2021 Spring Budget, the government is moving forward with its plan to tackle abuse within the R&D Tax Credits scheme.
Legislations for improving overall compliance within the scheme will be mapped out in the 2022-23 Finance Bill and put in place from April 2023.
With a crack-down on R&D Tax Credit compliance on the horizon, it’s more important than ever to have an experienced R&D Advisor on hand to maximise your claim. Our experts at Claim Capital are well-versed in meeting HMRC guidelines whilst reclaiming every penny possible for our clients.
These three takeaways encapsulate all you need to know about how yesterday’s Autumn Budget will affect R&D Tax Credits, as of April 2023.
If you want to find out more about how these changes might impact your future claims, don’t hesitate to reach out to one of our R&D specialists.