In March 2021, HMRC responded to its 2020 consultation, 'The scope for qualifying expenditures for R&D Tax Credits', it now plans to review the case for the widening of qualifying R & D expenditure.
Feedback was sought in respect of the types of expenditure that qualify for Research & Development reliefs. The feedback given by the stakeholders was as follows:
- There was support for including data costs, including the acquisition of data, to be included in the scope of R&D qualifying expenditure.
- There was confusion over whether Software as a Service (SaaS), where users access third party software through a cloud service, qualified for R&D relief under the existing provisions.
- There was no consensus in apportioning software costs and mixed costs (such as software with hosting and storage attached) between R&D and general business use.
- Relief for software costs was being applied inconsistently by the profession and the software categories provided were out of date.
- Cloud-based software and related costs should be included as qualifying expenditure in the same way as traditional software.
- Expanding the scope of the relief would likely drive either further R&D or the commercialisation of existing R&D.
- Expenditure on indirect activities were important in supporting R&D for certain sectors, but not others.
- The scope of indirect activities is wide including finance and recruitment departments which some commented were a distance from the R&D itself.
- Boundaries were being pushed by certain advisors.
Following the consultation, the government has decided to consult more generally on the R&D tax reliefs and will review the case for the widening of qualifying expenditure as part of that review.
Useful guides on this topic
Research & Development Tax Reliefs: At a glance
What's Research and Development (R&D) relief? How to claim R&D relief? How does small company R&D relief work? Can individuals claim R&D relief?
Research & Development Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?