In July 2022, the government has published draft legislation as part of Finance Bill 2022-23, which sets out the planned reforms of the Research & Development (R&D) Tax Relief. As previously announced, the relief will be expanded to cover a wider range of expenditure and relief will be restricted in part to focus more on rewarding UK expenditure.

In the Spring Budget 2021, the government launched a review of the R&D Schemes in terms of Specific Expenditure and the Scope in general and expenditure. It published the conclusions in November 2021 in the R&D Reliefs report and consultation. The consultation closed on 8 February 2022 and now draft legislation has been produced as part of Finance Bill 2023. The changes are aimed at:

  • Making the relief more effective.
  • Tackling fraud and abuse.
  • Improving compliance.

The proposals include:

Data licences/Cloud computing/Mathematics

  • Expanding the categories of qualifying expenditure to include data licences and cloud computing. This reflects recent advances in technology and the way R&D is now undertaken. The use of such services must directly contribute to the resolution of the scientific or technological uncertainty. The costs can be aportioned if also used for other business uses.
  • Data licences and cloud computing costs that are capital in nature will be excluded.
  • Generally excluded from R&D claims will be where such costs can be recouped by the onward selling of data or sharing of data with third parties. There must be a contractual right to be able to do so, in order for the costs to be excluded.
  • These new areas of allowable costs will be introduced from 1 April 2023. In order for work in progress costs to be qualifying, the rules must have been in force at the point at which the expenditure was initially incurred.
  • Pure mathematics will become qualifying expenditure.

UK and Overseas expenditure

  • When claiming for Sub-contracted work and Externally Provided Workers (EPWs), this will only be granted in future where the work is undertaken in the UK, subject to a limited number of exceptions.
    • It is the activity of the subcontractor being paid to do the work, to whom the UK condition applies.
    • Related costs for goods and services can be sourced from elsewhere but must be used for UK based R&D activities.
    • Any payments for EPWs must be subject to PAYE and NICs.
    • R&D undertaken partly in the UK and partly overseas can have the UK costs apportioned for a claim on a just and reasonable basis.
  • Qualifying Overseas Expenditure (QOE) is allowed where the following 3 factors apply:
    • The conditions necessary to unertake the R&D are not present in the UK.
    • The relevant conditions are present in the chosen location.
    • It would be unreasonable to replicate those conditions in the UK.
      HMRC's example is one of R&D requiring the use of an active volcano! In less dramatic scenarios, the guidance does go into further detail as to what may be 'unreasonable' in terms of replication. Specifically not included are availability of workers and costs involved.


Changes to the claim process will be introduced in an attempt to stop claims abuse.

  • For first time claimants and those who have not made a claim in the last 3 calendar years, a Claim Notification filed in advance, notifying HMRC that a claim will be made (unless the actual claim is filed before the Claim Notification submission deadline).
    • The Claim Notification can be submitted at any point from the first day of the accounting period to which the claim relates, to 6 months after the end of the accounting period.
  • All claims will need:
    • To be submitted digitally (unless exempt from online filing).
    • To include the details of any agents who have advised on the claim.
    • To be accompanied by an Additional Information Form (submitted either in advance or alongside the claim). The guidance sets out the detailed list of additional information required to be submitted.
  • A number of changes have also been made to address anomalies and unintended consequences of the current legislation.

These proposals are part of the government's aim to increase R&D investment to 2.4% of UK GDP by 2027.

What's new?

In December 2022, HMRC published guidance to be read in conjunction with the July 2022 draft legislation. The guidance clarifies how the legislation will work in practice and has been drafted in light of stakeholder feedback. The new rules are set to come into force on 1 April 2023.

See: Research and Development (R&D) tax reliefs: draft guidance

The draft guidance is open for consultation until 28 February 2023. Feedback should be emailed to: This email address is being protected from spambots. You need JavaScript enabled to view it.

Useful guides on this topic

HMRC response to consultation: R&D qualifying expenditure
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.

HMRC consultation: R&D Tax Reliefs
In March 2021, HMRC published a consultation on the scope of 'R&D Tax Reliefs', which reviews the nature of private sector R&D investment in the UK, how that is supported or otherwise impacted by the R&D relief schemes and where changes may be appropriate. 

R&D 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?

External links

Policy Paper: Research and Development Tax Relief changes

R&D Tax Reliefs report

Research and Development (R&D) tax reliefs: draft guidance

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