2022 Spring Budget; the impact on R&D tax credits
The Chancellor of the Exchequer, Rishi Sunak, has set out the UK Government’s latest spending plan in the Spring Statement. Although traditionally the Spring Statement is an update on the current state of the nation’s finances as well as future expectations, this year Sunak announced larger policies to help tackle the increased cost of living that everyone is experiencing.
The increased cost of living is not just affecting individuals but businesses as well, as they too struggle to meet increased energy, fuel and supply costs. With these increasing costs, some businesses may look to pull back on innovation and other investments as a cost-saving measure. So how does the 2022 Spring Statement tackle these concerns?
R&D tax credit update
There was a clear focus in the 2022 Spring Statement on the now and getting through the unprecedented rate of inflation. However, Chancellor Rishi Sunak did also set out “three priorities for this autumn” across people, investment and ideas. He spoke of “a new culture of enterprise” with final decisions to be announced in the Autumn Budget later in 2022.
For R&D tax credits, the UK Government committed to a reform of the current system to make it more generous and deliver better value for money for taxpayers, while being more liberal where the tax credits can make the most impact.
Expanding the scope
As set out in the Tax Administration and Maintenance Command Paper, from April 2023, the current scope of the relief scheme will be expanded to cover vital data and cloud computing. This reform to include some cloud and data costs will refocus support on R&D carried out to ensure the UK more effectively captures the benefits of the R&D funded by the tax relief.
Sunak and the government also set out plans to further grow the current scope for R&D reliefs by supporting the growing volume of research underpinned by mathematical advances. Therefore, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost. Where required, legislation will be published in draft before being included in a future Finance Bill to come into effect in April 2023. Expansions into data, cloud computing and maths are set to boost UK’s world-leading sectors such as artificial intelligence (AI), robotics and manufacturing.
The government also recognised that there is sometimes a need to conduct research and development overseas and therefore will legislate that R&D activity expenditure overseas can qualify when:
- Material factors such as geography, environment, population or other conditions that are not present in the UK but are required for the research – for example, deep-ocean research
- Regulatory or other legal requirements activities that must take place outside the UK – for example, clinical trials
As another measure to combat fraud and R&D tax errors, the government are providing the HMRC with an extra £12 million. This increased financial backing for the HMRC will join a number of other initiatives introduced by the government to clamp down on fraudulent claims including the PAYE/NIC cap for SMEs and the CT600 rule requiring a full CT600 and computation.
In summary, the 2022 Spring Statement has put into practice exciting expansions to the R&D tax credits scheme that will ensure businesses are able to claim relief for overseas work as well as on new areas of scope. The latest announcement ensures a more generous scheme to encourage innovation to benefit the UK and its world-leading sectors.