Spring Budget Statement 2022: R&D Highlights

On 23^rd March 2022, Chancellor of the Exchequer, Rishi Sunak, presented his Spring Budget Statement 2022, to parliament, highlighting how the UK government plans to support the UK.

The Autumn Budget 2021 highlighted areas of support for research and development, as well as planned reforms for the R&D Tax Relief Schemes. In this Spring Statement, there are further updates on the plans to increase the R&D budget and of the planned R&D Tax Relief reforms, which we have included below.

A new culture of enterprise

Improving productivity is the only way to deliver sustainable economic growth and increase living standards through higher real wages. The government has already taken important steps to meet its commitments to growth and to levelling up through the super deduction, the capital uplift, and commitment to invest £20 billion per year in R&D (research and development) by 2024-25.

To go further, as the Chancellor set out in the Mais Lecture on 24 February, the government will focus on three priorities:

• Capital — cutting and reforming taxes on business investment to encourage firms to invest in productivity-enhancing assets
• People — encouraging businesses to offer more high-quality employee training and exploring whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training
• Ideas — delivering on the pledge to increase public investment in R&D and doing more through the tax system to encourage greater private sector investment in R&D

R&D tax relief reform

The government set out in the Tax Administration and Maintenance Command Paper that R&D tax reliefs would be reformed to include some cloud and data costs and refocus support on R&D carried out in the UK. The government has listened to stakeholders and can confirm that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief.

The government remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. The government recognises that there are some cases where it is necessary for the R&D to take place overseas.

The government will, therefore, legislate so that expenditure on overseas R&D activities can still qualify where there are:

• material factors such as geography, environment, population, or other conditions that are not present in the UK and are required for the research – for example, deep-ocean research
• regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost.

Where required, legislation will be published in draft before being included in a future Finance Bill to come into effect in April 2023.

To ensure the effective targeting of the UK’s R&D relief the government will consider increasing the generosity of RDEC to boost R&D investment in the UK. This would rebalance the schemes and make RDEC more internationally competitive.

In addition to making the RDEC scheme more attractive, the government will consider what more can be done to tackle the abuse of R&D tax reliefs, particularly in the SME scheme, ahead of Budget 2022. As the Public Accounts Committee and National Audit Office have made clear, abuse of the R&D tax reliefs is an issue that must be tackled. The government announced in November the creation of a new cross-cutting HMRC team focused on tackling abuse of these reliefs.

What does TBAT think about the Spring Statement 2022?

We’re pleased to see that the proposed addition of mathematical, cloud computing, and data costs, to eligible R&D expenditure is due to be legislated in April 2023, along with the decision of some overseas R&D being eligible, where it is necessary.

The continued work by HMRC on tackling the abuse of the R&D Tax Relief schemes is vital, to protect the schemes for the thousands of UK businesses that legitimately undertake R&D and can benefit from making a claim. Claimant companies are already seeing an increase in enquiries to ensure claims are not fraudulent, and while this can be frustrating, it is necessary to protect legitimate claims long-term.

We’re interested to see the progression of the RDEC review, which may increase the percentage of tax relief, or expand the scope of eligible activities and expenditure. Either way, increasing the generosity of the scheme is a welcome revision for large companies, and we’ll make sure to update you when we know more.

If you’re looking for funding for your innovation now, you can review the latest Grant Funding opportunities on our Grant Funding Finder, or use our R&D Tax Calculator for a ball-park figure on how much R&D Tax Relief you could receive from HMRC. Our expert consultants are available to discuss your project idea in detail and help you access the funding you need, simply get in touch.