Consultation on expanding qualifying expenditure for R&D tax relief

The government is consulting on the scope of qualifying expenditures for R&D tax credits, focusing particularly on whether expenditures on data and cloud computing ought to qualify for relief

At Spring Budget 2020 the Treasury announced it would look at what costs companies can include in R&D tax credit claims, and whether these need to be updated to ensure the credits remain well-targeted and reflect modern R&D processes, given the previous review took place in 2010.

The current consultation covers how HMRC-administered tax credits have supported R&D to date and how the scope of qualifying expenditure for R&D tax credits ought to evolve to reflect trends in research and development.

It will not consider other government R&D interventions, such as research grants or the research and development allowance (RDA) capital allowance, nor the proposed R&D SME tax credit PAYE/NICs cap which is the subject of a separate consultation, published on 19 March.

In recent years some stakeholders have proposed that more of the costs incurred in the generation, processing or analysing of datasets should be eligible for relief under the R&D tax credits regime, and the consultation asks for views on how businesses classify and use datasets when undertaking R&D activities.

At present, some software costs relating to assets developed for internal use qualify for R&D tax credits but others, such as cloud computing leasing costs, do not. The consultation explores how this could be addressed, in a way which is not unduly complex to administer and costly for the government.

The Treasury is also seeking input about expenditures on indirect activities which should be limited or excluded from eligibility for relief, on the basis these costs could be considered routine work, in order to ensure R&D tax credits offer value for money.

The consultation closes on 13 October.

The scope of qualifying expenditures for R&D Tax Credits: consultation

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