Cloud Computing costs to be included in R&D Tax Incentives
Cloud computing and data costs are to be included as an Eligible R&D Incentives expense it was announced in the Autumn Budget.
A move that has been coming for sometime, this welcome introduction sees the R&D Tax Incentives scheme move and adjust with the changes in cutting edge technology which has seen a significant change in how businesses use software to innovate, with a move from standalone software packages to cloud / SaaS platforms, as well as huge investment in data that is transformed to provide real insight and analysis to drive R&D and development.
Previously many of these costs that have become common place in businesses, critical to innovation, could not be included in claims as they were arguably neither true 'software' costs nor 'consumables'. The announcement by the Treasury reflect the changes in technology costs driving businesses and their innovating, which have changed dramatically since the R&D Incentives scheme was devised in 2004.
UK First
One other area of interest mentioned in the budget was the move to refocus the scheme on eligible R&D costs in the UK. Currently the location where eligible R&D expenditure is not a factor, so costs can be included where they have been made overseas, but through the UK business. It seems that there is now a focus to ensure the incentives are focussed to promote UK costs, bringing it in-line with similar R&D schemes across the world.
An extract from the Budget and Spending Review:
To ensure the R&D tax reliefs continue to support cutting edge R&D methods, the government will expand qualifying expenditure to include data and cloud computing costs, reinforcing the UK’s status as a science superpower.
https://www.gov.uk/government/publications/autumn-budget-and-spending-review-2021-documents
While UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019, the ONS estimates that businesses only carried out £25.9 billion of privately-financed R&D in the UK.47 This gap is partly explained by companies being able to claim for activity taking place overseas. This suggests that the UK is not effectively capturing the benefits of R&D funded by the UK taxpayer through the reliefs. Many other countries, including Australia and the USA, do not offer relief for R&D activities performed overseas.
To more effectively capture the benefits of the reliefs, including improved skills, know-how and understanding, the government will refocus the reliefs towards innovation in the UK.
Incentives reform announcements to follow
The budget announcements gave a few hints as to what is to follow with the R&D Incentives reform announcements that are due later this Autumn that many in the profession eagerly await, with more significant changes anticipated following a consultation by the Treasury to re-focus the R&D Incentives scheme to ensure it is well focussed to benefit UK innovation.
