Keen to make the UK a world leader in R&D, the tax relief has become more generous in recent years and enables some companies to claim a cash repayment from HMRC. As a result of this, the number of companies making claims for R&D tax relief has doubled in the last six years to more than 85,000 claims per year. W ith the aim to increase spending on R&D from 1.8% of GDP to 2.4% of GDP by 2027, the government is eager to encourage R&D Given the increased scrutiny, it is vital that any company considering making a claim, seeks professional advisers who fully understand the mechanics of the tax relief and can advise on which projects qualify for enhanced relief and, just as importantly, which projects do not. We have seen an increasing number of cases of companies being cold called by ‘specialist’ R&D tax advisers who have ‘guaranteed’ that the company will be 100% successful in making
However, what the Chancellor gives with one hand, he takes away with the other, and there will also be a tightening of another aspect of the relief. From April 2023, only expenditure on R&D activities undertaken within the UK will qualify for tax relief. The Chancellor says that this is to ensure that the reliefs incentivise UK innovation and are appropriately targeted in a way that best benefits UK industry, as well as bringing the UK R&D relief in line with similar tax relief in the US and Switzerland. The change is however a significant shift from the current position whereby the R&D activities can be carried out anywhere in the world as long as they are on behalf of a UK company. It will have a huge impact on many companies who effectively outsource their R&D away from the UK. Increased Scrutiny As the cost of R&D tax relief to the Exchequer increases, claims for the relief has come under increased scrutiny from HMRC, who have recently hired 100 new inspectors to focus solely on the review of R&D claims. Over the past 12 months we have seen both the number of investigations into R&D claims and the number of tax cases brought by HMRC start to increase.
activities. Currently, R&D tax relief accounts for £7.5billion of the £38.5billion spent each year in the sector so it is safe to say that the tax relief will remain for some time to come. However, to ensure that it meets the overall objective of growing spending on R&D and delivering wider spill over to the UK economy, it will need to evolve. Changes Ahead In the recent Budget, the Chancellor announced a number of changes to R&D relief which are due to come into force from April 2023. These changes include a widening of the categories of expenditure which are eligible for enhanced tax relief to take into account changing technology. From April 2023, expenditure incurred in the purchasing, manipulating and cleansing of data for use in R&D activities will qualify for enhanced relief. Similarly, costs for cloud computing used in R&D projects will also benefit from enhanced R&D tax relief, bringing the tax relief more up to date with the changing pace of R&D projects.
an R&D claim despite knowing little about the company or the work that it undertakes. In these cases, if something seems too good to be true, it usually is! Within the Tax Advisory team at Scrutton Bland, our aim is to ensure that our clients take full advantage of any and all tax reliefs that are available to them but also to shield them from the risk of a time consuming, stressful and expensive tax enquiry. We do this by working with our clients over the long term, building relationships and fully understanding the businesses we work for so that we can provide comprehensive, tailored advice. So, if you think that your company might be eligible for R&D tax relief, contact our team for an objective review of your circumstances.
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