In March 2021 HM Revenue and Customs published the results of their consultation into R&D tax relief. The consultation had been announced in the Spring Budget 2020 and was focused on the costs that companies can include in R&D tax credit claims, and whether these should be updated to include the costs of accessing datasets (“data”) and payments for cloud computing services (“cloud”).
The government consulted with a range of industry groups and businesses across several sectors, as well as accountants and accountancy professional bodies. The conclusion was that overall there is significant stakeholder appetite for bringing data and cloud computing costs into the scope of the reliefs.
The consultees felt that the cost of data acquisition, should be brought within the scope of qualifying expenditure as it has a growing importance in some sectors, such as functional genomics and machine learning. In these data-heavy R&D activities the quantity and quality of data acquired are important for good R&D outcomes and if the data costs were qualifying expenditures, researchers could more affordably acquire more or better-quality data, which could lead to better and faster R&D outcomes.
The consultation also considered whether cloud services should be qualifying expenditure, including:
- Infrastructure as a service (IaaS) – user accesses instant computing infrastructure, hosted on the cloud, managed over the Internet (e.g. AWS, Google Cloud Platform, Microsoft Azure)
- Platform as a service (PaaS) – user manages a software application running on the platform.
- Software as a service (SaaS) – users access third-party software, provided through a cloud service provider’s hosted infrastructure.
The respondents felt that cloud services are an essential modern form of computational R&D and should be eligible expenditure in the same way that software licenses currently qualify for R&D tax relief. There was a strong feeling that the R&D guidance should be updated to mirror the shift that many organisations are making away from on-premise solutions (where the license costs qualify for R&D tax relief and the capital assets attract other tax reliefs) toward software leased and accessed via the cloud (which does not currently attract any R&D relief).
As a result of the consultation, the government has accepted that there is a strong case to consider bringing data and cloud costs into the scope of the reliefs. However, no imminent action is likely to be taken as there are concerns that expanding the scope of qualifying expenditures could add complexity to the R&D schemes, which may create additional scope for abuse.
In addition, in Spring Budget 2021 a further consultation into the R&D tax reliefs was announced, which will be much broader in terms of its scope. As a result, a decision on extending the scope of expenditure has been delayed until this new consultation has been carried out. With this in mind, it seems unlikely that a change in the rules will occur within the next 12 months.