Consultation on data and cloud computing – qualifying expenditures for R&D tax credits

R&D is a significant global factor in driving innovation, productivity gains and economic growth, and as a consequence, the government seeks to encourage and invest in R&D in the UK through the extremely generous R&D tax relief schemes. Combined, the two schemes provided £4.4bn of support to over 7,000 businesses in 2016-17.

To qualify for relief, expenditure on R&D must be incurred on particular types of activity, currently limited to staffing costs (employees and agency workers), consumable or transformable materials (such as water, fuel and power of any kind), certain types of software, payments to clinical trials subjects and, depending on the scheme, some subcontracting costs.

As the economy evolves and we face new global challenges, the environment in which firms conduct R&D is also changing rapidly. The government has published an R&D roadmap, increased the large company R&D credit from 12% to 13% and is now consulting on potential changes to the scope of qualifying expenditure for R&D tax credits.

The subject of this consultation is especially focused on whether expenditures on data and cloud computing ought to qualify for relief. We would be interested to hear from software development/tech businesses in relation to whether there uses of data that contribute to R&D but which do not currently attract relief. Similarly, the consultation raises questions on the eligibility of various software costs. We would be interested to know how existing claimaints have been affected when looking at the software and data costs they have incurred but which have not been eligible.

The government hopes to pay for any extension to the definition of qualifying data/software costs by restricting the availability of relief for “qualifying indirect activities” and routine work. These can be activities like maintenance, clerical, administrative and security work. Comments are also welcome on which areas of this could be limited without greatly impacting businesses.

The consultation will run until 13 October 2020.

Other blogs in this R&D series

Episode 1 – Not all R&D is qualifying R&D
Episode 2 – Why use an accountant for your R&D claims?
Episode 3 – The impact of the Coronavirus Job Retention Scheme on R&D

Contact us

For further advice, please contact Hollie Thompson at hollie.thompson@taitwalker.co.uk.