What is legislation day? This is when the Government publish draft clauses from the next Finance Bill, giving stakeholders a chance to comment and influence the final legislation, ahead of the publication of the final Bill shortly after the Budget in the autumn.
The proposed changes have almost entirely been previously mentioned either in earlier budgets as aspirations or through the HMRC R&D Forum.
The changes, if they become law, will apply to accounting periods beginning on or after 1st April 2023.
The changes are:
Extending qualifying expenditure. To include the costs of data licenses and cloud computing. To remove the exclusion of pure mathematics as a qualifying activity.
View. Increases the scope of qualifying expenditure. Claimants expect to be able to claim cloud computing costs and have in my 10 years of experience been surprised and disappointed that they cannot, so this change has been a long time coming but is welcome.
Refocusing the reliefs towards innovation in the UK. To disallow, with narrow exemptions, relief for subcontracted work and the costs of externally provided workers based outside the UK.
View. Reduces the scope of qualifying expenditure. It is hard to assess if it will alter decision making given the cost advantage of using overseas resources for many businesses. Businesses like to be competitive, and this change could be viewed as against this.
Tackling abuse and improving compliance. Claims will have to filed digitally. They will have to include a breakdown of the costs claimed and a brief description of the R&D. Claims will have to be endorsed by a senior officer in the claiming company. Companies will need to notify HMRC of an intention to claim within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to notify. Claims will need to include details of any agent who advised the company making the claim.
View. Most of these are things a good R&D consultant will advise a company to do anyway. For example, all our claims have always included claim narratives, cost breakdowns, names of the competent technical professionals involved in the claim, and our names. Having to file digitally; I would just question what we do if HMRCs online service is faulty, as it has been for the last few months with some aspects of RDEC and was for a few months last year. The notification issue it is hard to see what this aims to achieve, and it could cause a degree of heart break for a company that finds out about a potential R&D claim late.
Previously announced measures to address anomalies and unforeseen consequences. I will not go into detail on these as they are quite “niche” and to some degree clarifying the intention of prior legislation.
The full detail can be found here: