Scope of qualifying expenditure for R&D tax credits: Consultation

Scope of qualifying expenditure for R&D tax credits

HM Treasury is consulting on whether to expand the range of qualifying expenditure for R&D tax credits to include data and cloud computing costs.

Carol Johnson

Tax Director - Innovation Incentives

KPMG in the UK


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HM Treasury has issued a consultation on the scope of qualifying expenditures for research and development (R&D) tax incentives. It is inviting views on whether to expand the range of qualifying expenditure to include data and cloud computing costs to better reflect modern R&D practices. Views from businesses on how they use data in R&D activity, and what costs are incurred in the use of the cloud in R&D are welcomed.

However, the consultation document makes it clear that any expansion of the R&D rules needs to also take into account where other cost savings could be made, and also to demonstrate that this will meet the policy objective of encouraging reinvestment of funds in R&D.

HM Treasury is therefore also asking for respondents that desire an extension of the scope of costs that qualify, to identify areas that are currently eligible for tax credits to be restricted or limited. Specifically, it has asked for views on whether qualifying indirect activities (e.g. administrative and clerical support for R&D) and routine activities should be limited or restricted.

The consultation document issued on 21 July 2020 focuses on the important role R&D plays in a modern economy, but also highlights the importance of ensuring the R&D tax credits regime is more reflective of modern R&D practices and delivers the policy intent of driving greater reinvestment of funds into R&D.

We know that for many of our clients the use of data in R&D activities is growing. Modern business also relies increasingly on accessing cloud based services. It is important to have a well targeted R&D regime that reflects current and future R&D methods and we welcome this timely consultation.

KPMG would welcome views from businesses who currently claim R&D incentives, that use data and cloud computing services in R&D or, that could be impacted by a restriction on including the costs of qualifying indirect activities and would recommend participation in the consultation.

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