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UK: Possible expansion of R&D tax credits to include data, cloud computing costs

UK: Possible expansion of R&D tax credits

HM Treasury issued a consultation concerning whether to expand the range of qualifying expenditure for research and development (R&D) tax credits to include data and cloud computing costs.

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HM Treasury in issuing the consultation on the scope of qualifying expenditures for R&D tax incentives invited comments as to whether to expand the range of qualifying expenditure to include data and cloud computing costs to better reflect modern R&D practices. Businesses have been asked to comment on how they use data in R&D activity, and what costs are incurred in the use of the cloud in R&D. The consultation document (21 July 2020) makes it clear that any expansion of the R&D rules needs also to take into account when other cost savings could be made, and to demonstrate that this will meet the policy objective of encouraging reinvestment of funds in R&D.

HM Treasury is therefore asking for those 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 and, specifically, has asked for views on whether qualifying indirect activities (such as, administrative and clerical support for R&D) and routine activities need to be limited or restricted.

The consultation document focuses on the important role R&D plays in a modern economy, but also highlights the importance of determining that 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. Modern business relies increasingly on accessing cloud based services.

Read a July 2020 report prepared by the KPMG member firm in the UK

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