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Expansion of qualifying R&D expenditure
Expansion of qualifying R&D expenditure
Andrew Hawley, Director, Corporate tax
R&D tax credits are a core part of supporting UK innovation but as the economy evolves and new challenges present themselves the framework under which R&D claims are made must reflect this. Therefore, in order to ensure the costs that can be included in an R&D claim are more targeted and reflect modern R&D activities, HMRC has
issued a consultation document
. The consultation’s aim is to obtain views from R&D tax relief claimants and other stakeholders on the scope of costs a company can include in its R&D tax credit claims.
HMRC is particularly interested in obtaining views on whether costs for data and ‘cloud computing’ should be treated as qualifying costs within an R&D claim. HMRC is keen to understand how claimants use such data in their R&D activities and the kinds of costs that are incurred when developing cloud-based solutions.
As more and more businesses in different industries look to technology for software solutions there has been a general increase in the generation, analysis, and processing of data. In some cases, data can be viewed as consumed or transformed within the R&D process, however HMRC is keen to further understand how datasets are used when undertaking R&D so this cost category can be expanded and further defined.
Like data costs, some software costs qualify for R&D tax credits, however there are other costs incurred alongside software costs that currently cannot be included within an R&D claim. This is typically where software is leased from external parties and payments cover a range of activities including use of software, storage rental, support and processor running time. Such costs are usually linked with innovative ‘cloud computing’ solutions and so HMRC is gathering information to further understand whether such costs should qualify alongside traditional software costs.
HMRC has also made it clear that such an expansion of scope for including these costs would come at a cost to the exchequer and therefore, they are also interested in hearing about current qualifying costs that may be considered routine work and no longer eligible for inclusion in claims. A specific area in the consultation that the government is keen to gather views on is around ‘indirect activities’ and routine work as this is an area of cost they have identified that may not contribute to genuine innovation.
Indirect activities are activities which form part of a qualifying R&D project but do not directly contribute to the resolution of technological or scientific uncertainty. In particular they include, reports on R&D findings, feasibility studies, devising new testing methods, R&D training, essential ancillary activities, and certain indirect support activities.
The consultation document was issued on the 21 July 2020 and will run until the 13 October 2020.
We are aware that this consultation will be relevant to many of our clients for which we make R&D claims for. The potential expansion of the definition of data and cloud computing costs would be welcomed, but limiting the definition on indirect activity costs may cause some concern. We would therefore welcome views from businesses who currently make R&D claims who could be affected by the contents of the consultation document.
We would be delighted to hear from any company that does not already make claims for R&D tax credits but would like to explore whether this could be of benefit to them.
If you would like to pass on your views and have them included within Crowe’s response to the consultation please contact
or your normal Crowe R&D contact.
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Partner, Corporate Tax
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