In March 2021, HMRC responded to its 2020 consultation, 'The scope for qualifying expenditures for R&D Tax Credits', it now plans to review the case for the widening of qualifying R & D expenditure.  

Feedback was sought in respect of the types of expenditure that qualify for Research & Development reliefs. The feedback given by the stakeholders was as follows:

  • There was support for including data costs, including the acquisition of data, to be included in the scope of R&D qualifying expenditure.
  • There was confusion over whether Software as a Service (SaaS), where users access third party software through a cloud service, qualified for R&D relief under the existing provisions.
  • There was no consensus in apportioning software costs and mixed costs (such as software with hosting and storage attached) between R&D and general business use.
  • Relief for software costs was being applied inconsistently by the profession and the software categories provided were out of date.
  • Cloud-based software and related costs should be included as qualifying expenditure in the same way as traditional software.
  • Expanding the scope of the relief would likely drive either further R&D or the commercialisation of existing R&D.
  • Expenditure on indirect activities were important in supporting R&D for certain sectors, but not others.
  • The scope of indirect activities is wide including finance and recruitment departments which some commented were a distance from the R&D itself.
  • Boundaries were being pushed by certain advisors.

Following the consultation, the government has decided to consult more generally on the R&D tax reliefs and will review the case for the widening of qualifying expenditure as part of that review.

Useful guides on this topic

Research & Development Tax Reliefs: At a glance
What's Research and Development (R&D) relief? How to claim R&D relief? How does small company R&D relief work? Can individuals claim R&D relief?

Research & Development Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?

External link

The scope of qualifying expenditures for R&D Tax Credits: 2020 consultation - summary of responses


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