The Research & Development Communication Forum, or RDCF (formerly the Research and Development Consultative Committee, or RDCC), is an HMRC-sponsored forum that meets every six months to discuss the operational delivery of the UK’s R&D tax relief schemes.
The committee, which comprises HMRC agents, professional bodies, industry delegates and representatives of trade bodies, last met in December 2021. As members of the RDCF forum, here are our key takeaways from that meeting.
Cloud computing costs will be eligible for relief
It’s been a long time coming but we’ve now learned more about HMRC’s changing approach to cloud computing and big data expenditure.
It was exciting back in Autumn 2021 to learn from HMRC that qualifying cost criteria for both the Research and Development Expenditure Credit (RDEC) and SME R&D relief schemes would be expanded to include cloud computing and big data costs.
In December’s forum, HM Treasury Policy Advisor Isaac Haigh asked to hear from companies to whom this would be relevant so that the government could ensure future legislation would be “fit for purpose”.
It seems these discussions led to greater clarity being provided, as we’ve now learned that some indirect uses of cloud computing, such as storage, will now be covered.
Data licensing was discussed too, and this could also be included in R&D relief applications as long as the claimant doesn’t maintain any rights to publish, share or otherwise communicate raw data within a dataset they’ve licensed for use in an R&D project.
A u-turn on overseas R&D work claims
Less welcome in November was HMRC’s proposal to stop businesses claiming R&D relief on the cost of R&D subcontractors based outside of the UK.
This, too, was discussed in the meeting, where HMRC representatives reiterated the intention to encourage activity in the UK, not outside of it, but claimed they were open to hearing about any “narrow exceptions” that could be accounted for.
Again, it seems this openness led to an amendment, as we’ve now learned of a u-turn in the decision and expenditure on overseas R&D work will remain eligible where there are:
- material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep-ocean research.
- regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials.
HMRC’s position on subsidised expenditure
The recent high-profile tribunal case involving Quinn London Limited and HMRC highlighted several issues around the latter’s definition of subsidised expenditure.
To refresh your memory, HMRC initially rejected an R&D relief claim from Quinn on the grounds that its costs were subsidised. It argued that payments made by Quinn’s clients for its finished building works made the R&D expenditure ineligible.
At appeal, the First-Tier Tribunal (FTT) ruled in Quinn’s favour, saying it was entitled to £1 million in unpaid tax relief from HMRC.
We believed at the time that this was reassuring news for businesses who take on R&D projects on behalf of clients but also made it clear that the industry needed more clarity about what does and doesn’t qualify as a subsidised expenditure.
We were right to be hesitant.
While HMRC said in the RDCF meeting that it would not be appealing the FTT’s decision, it also made clear that its view of the legislation in question has not changed since at least 2004.
R&D technical advisor Sean Coneeny revealed HMRC’s standing to be that:
- FTT decisions are not binding, do not have precedent value and are made on the facts of each specific case.
- HMRC may have made an error in not challenging the claim earlier in the process
- HMRC will continue to challenge similar claims
Pre-notifying HMRC of planned R&D projects
As part of the reform announced in November, companies will need to inform HMRC in advance that they plan to make an R&D relief claim (as well as making the claim digitally and including more detail, such as the names of any advising agents, information on what expenditure the claim covers and the uncertainty overcome).
While we welcome any streamlining effect this will have, there were a few understandable concerns raised in the committee meeting.
In response, HMRC said that:
- It envisages prenotifications to be made before the end of the accounting period to which the R&D relief claim relates
- As they’re distinct notions, advance assurance and pre-notification can be completed separately, although an advance assurance (where it’s applicable) could be taken as pre-notification
- It (at the time of the meeting) was still considering how to implement the pre-notification measures and would work internally and with external stakeholders to ensure they worked as intended
For more information…
We specialise in helping businesses access the R&D relief they’re entitled to, working closely with HMRC to understand R&D tax legislation. This ensures all the claims we submit for clients are accurate, maximized and robust.
This RDCF event took place in December 2021 and in March, the government offered further information on changes to both relief schemes in its Spring Statement.
Watch our round-table discussion now to learn more about these updates and the potential impacts.