Following the most recent consultation into research and development (R&D) tax incentives, the Chancellor announced several changes that will be made with effect from 1 April 2023.
One of the major update’s centres on the modernisation of what is classed as qualifying expenditure. Data and cloud computing costs were previously not classified as qualifying expenditure. Therefore, any funds spent on these activities over the course of an R&D project could not be claimed.
In many cases of cutting-edge R&D being carried out it is absolutely vital to have large datasets and analytical methods to analyse said data. Furthermore, cloud computing has continued its rise to prominence even faster than expected due to the necessity of remote working methods throughout the Covid-19 pandemic. Below are the key areas of change.
Dataset licence payments
As datasets can be as important to R&D as the classic raw material, it is refreshing to see that detailed guidance has already been provided in determining what specific dataset costs will be qualifying.
- Expenditure spent on datasets via licenses which are used directly for R&D in a qualifying R&D project will qualify for relief. Where an access agreement covers multiple datasets, of which, some are used for non-R&D purposes the claimant will be required to apportion the costs.
- However, company’s will not be able to claim relief on the cost of datasets that can be either resold or have a lasting value to the business beyond the scope of the project. Specifically, costs relating to a licence agreement which grants the following will not qualify;
- Any rights of resale over the data.
- The claimant the right to publish, share or otherwise communicate the raw data within the dataset to a third party.
- Any ongoing rights of use, beyond the expected term of the R&D project being undertaken by the claimant.
Staffing costs for the creation of datasets
Where companies need to conduct their own fieldwork to develop a dataset, they are already able to claim relief for the relevant staffing costs. If the data is not collected for sale or other commercial purposes and directly contributes to the advance in science or technology being sought by the project. Some examples of these qualifying costs can contain collecting, cleansing, and analysing data. The government intends to publish fresh guidance to make this position clearer.
Cloud computing costs
A further area, which as of April 2023 will be classed as qualifying expenditure will be cloud computing services and packages used directly for R&D. One point to note regarding the inclusion of these costs as qualifying expenditure is that the government intends to apply the current principle that applies to general overheads such as rental costs. HMRC will therefore likely intend to exclude similar costs incurred as part of a cloud computing package. Draft legislation is due to be published for this in Summer 2022.
If you need assistance with your R&D relief claim please don’t hesitate to talk to our specialist team for advice – contact us at firstname.lastname@example.org.