Autumn Budget Review – Key Changes to the UK R&D Tax Scheme

The Autumn Budget is a main event in the government’s yearly economic development, and in recent years has contained items of vital importance to the R&D tax relief initiative. But what were the key takeaways from Rishi Sunak’s most recent Budget? 

During his speech, the Chancellor noted that “The latest figures show the UK has the second-highest spending on R&D tax reliefs in the OECD. Yet it’s not working as well as it should.” Two key changes were therefore announced that will impact what expenditure can be claimed. This is part of what chancellor Rishi Sunak has described as part of new efforts to make the country’s R&D relief scheme “fit for purpose”. 

However, in good news for QLC clients, HM Treasury noted in their review that the R&D Tax Relief scheme will continue to be supported and the government will increase public investment in R&D to record levels of £20 billion by 2024-25. Along with this comes key changes to how the scheme supports UK businesses. 

The two key changes to be aware of are: 

1. Cloud computing and data costs are now qualifying expenditure.

“The reliefs need to reflect how businesses conduct research in the modern world”, said Sunak, and this is reflected in the new update to cloud computing and data costs. 

Cloud computing costs which support R&D projects will become eligible. Our analysis will enable you to consider these correctly in preparation for the changes. 

2. From April 2023 it will no longer be possible to claim for R&D that does not take place within the UK. 

Another point addressed by Sunak was the fact that the UK government is “subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom.” 

This relates to the fact that, in 2019, domestic UK investment through R&D tax relief was around £26bn whereas companies claimed relief of about £46bn in total. This suggests that the UK is not effectively capturing the benefits of R&D funded by the UK taxpayer through the reliefs and is funding R&D being carried out abroad. 

Therefore, it is likely the government will clamp down on the ability to claim for R&D expenditure incurred in countries outside the UK. 

What does this mean for QLC clients?

The exact legislation of how these changes will be implemented are yet to be released. However, QLC will continue to monitor developments, enabling us to ensure you are able to continue claiming and that you do not miss out on any potential returns.  

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