The Chancellor has confirmed that innovation is core to growth in the UK, citing investment through Innovate UK and the British Business Bank. He also recognises the value of people-talent around the world with the introduction of fast-tracking visas for ‘the best minds’ to come to the UK. The Global Talent Network, a government initiative, is being launched in the Bay area and Boston in the US and Bengaluru in India to identify and attract talent from around the world in science and technology.
Following a recent consultation, the government has decided to expand the categories of costs that qualify for R&D tax credits. Seeking to ensure that the UK’s R&D tax credit schemes reflect the expenditure of the ‘modern company’, the government has decided to treat data and cloud computing costs as allowable expenditure. This is expected to take effect from April 2023.
The government has expressed a concern that the UK is not benefitting from the investment the UK taxpayer is making to R&D tax credit schemes. Data produced by the Office for National Statistics (ONS) has concluded that only £25.9 billion of R&D expenditure is incurred in the UK, whereas UK companies claim R&D tax credits on £47.5 billion of expenditure. One reason for the difference is that tax credits are claimed on the activity carried on outside the UK.
What this does not acknowledge is that the fruit of the R&D activity (the intellectual property) should have roots in the UK. Therefore, the UK should benefit, by virtue, of the tax raised on sales of products derived from the R&D activity, irrespective of where the R&D is carried out.
Companies that carry out R&D activity overseas should review whether to make changes or continue business as usual. The decision about where to operate should not be driven by taxation measures. There may be many reasons, other than R&D tax credits, for relocating to the UK, as well as those that support keeping the R&D activity outside of the UK. Companies should carry out a cost against benefit review to aid their decision-making.
To discuss how the announcements will impact your organisation please get in touch with Stuart Weekes or your usual Crowe Contact.
Autumn Budget 2021
Crowe Cast: Innovation
R&D Tax Reliefs for SMEs: PAYE & NIC Cap