HM Treasury have opened a new consultation ‘The scope of qualifying expenditures for R&D Tax Credits’ seeking views on what costs companies can include in R&D tax credit claims and whether they should be updated to reflect modern trends in R&D.

The government is also specifically considering whether to include expenditure on data and cloud computing as eligible costs for R&D claims.

  • Currently, some software costs on assets developed for internal use qualify for R&D tax credits, but other costs incurred alongside software costs where the software is externally leased, are not deductible.
    • This might include ‘cloud computing’ where payments cover a range of activities purchased as packages and used across the business operations as well as for R&D activity.
  • Data can sometimes already be treated as a consumable item used in the R&D process. The government wants to understand more about how businesses classify and use datasets in R&D activities to see whether more costs incurred in the generation, processing or analysing of datasets should be eligible for relief.

Whilst the government welcomes views on areas where particular R&D costs should be eligible for relief, they stress that alterations to the scope must be delivered in a cost-efficient manner which maximises the additional relief available by driving new investment decisions.

The consultation questions are:

1a: Are there uses of data that contribute to R&D but which do not currently attract relief through the R&D Expenditure Credit (RDEC) and Small and Medium-Sized Enterprise (SME) schemes? Please provide examples to support your response.

1b: To what extent are data sets employed in the R&D process consumed? To what extent do they retain value? Please provide examples to support your response.

2a: Do you already claim for software costs under the current definition? If so, what was your experience of separating out the R&D specific costs for the purposes of the claim?

2b: Are there any software costs that currently qualify for R&D tax credits that could be limited or excluded from relief without materially affecting R&D projects? Please provide examples to support your response.

2c: Are there any software costs, partially or wholly for R&D purposes, that do not currently qualify for R&D tax credits that should be if the regime is to better reflect the nature of modern R&D? Please provide examples to support your response on whether these costs could be separated out straightforwardly.

3a: What experience do you have of claiming R&D tax credits in other jurisdictions, where expenditures pertain to data or cloud computing?

3b: What evidence can you provide that a scope expansion in these areas would drive you to make additional investments in research and development.

4: Would changes to the R&D tax relief rules in the areas outlined above lead to any change in the commercial relationships between companies, insofar as expenditure is outsourced to a third-party provider?

5a: Are there expenditures on indirect activities which should be limited or excluded from eligibility for relief? Please provide examples to support your response.

5b: Are there other expenditures on routine work which should be limited or excluded from eligibility for relief? Please provide examples to support your response.

The consultation closes on 13 October 2020 and responses should be sent to: This email address is being protected from spambots. You need JavaScript enabled to view it.

Links

R&D Tax Relief: Overview
R&D Relief is a Corporation Tax relief. There are two schemes for claiming relief, depending on the size of the company or organisation

R&D: Software

Expenditure on software development can qualify for R&D reliefs in two circumstances, when software development is the goal of the project and when software is developed as part of a larger R&D project.

External

Consultation: The scope of qualifying expenditures for R&D Tax Credits

 

 

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