Chancellor confirms changes will be made to R&D tax regime

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The Spring Statement has brought little surprise in respect of R&D tax relief, confirming speculation that changes will be made.

Following the Chancellor’s Mais lecture in February, ICAEW's Tax Faculty identified the possibility of imminent changes to the R&D tax regime. While the extent of the changes remains unclear, they will take effect from April 2023, with draft legislation to be included in the next Finance Bill.

The Spring Statement confirmed that the government is considering increasing the generosity of the R&D expenditure credit (RDEC) scheme, which is aimed at larger companies, to make the regime more internationally competitive. Little mention was made of the SME scheme for R&D specifically, other than to confirm that further consideration would be given to how to limit abuse of this scheme.

The Spring Statement also announced the inclusion of all mathematics into qualifying R&D expenditure, recognising the growing volume of R&D being undertaken that is underpinned by pure mathematics. These reforms are aimed at supporting specific sectors, such as robotics and artificial intelligence alongside manufacturing and design.

The Spring Statement also confirmed that, while the government will continue to refocus relief towards innovation in the UK, it will legislate to ensure relief can be claimed for overseas costs where there are:

material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research (for example, deep ocean research); or
regulatory or other legal requirements that activities must take place outside of the UK (for example, clinical trials).

The Tax Faculty welcomes this development as this resonates with points made in ICAEW REP 9/22 to HMRC.

ICAEW’s Tax Faculty is keen to continue to work closely with HMRC and the Treasury to provide assistance around any policy changes, if required.

Further information

Chancellor sets out low tax higher growth economic vision

Chancellor hints at redesign of R&D tax regime

R&D Tax Reliefs Report Representation 9/22

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