The government are currently in the consultation period of possible changes to policy covering R&D tax credit qualifying costs. This was announced in the Spring Budget this year, as a revaluation of criteria that haven’t been considered for a decade.

There’s still plenty of time to contribute, the deadline is 13th October 2020.

What changes are being considered?

The focus is on what can be included in the qualifying costs section of an R&D Tax Credit application.

Government want “to ensure the credits remain well-targeted and reflect modern R&D processes”.

Given that they are to support innovation at the highest level, across every industry, there will be items that are available now that simply didn’t exist when the current policy was written. So it makes sense to modernise accordingly.

Some suggestions are already part of the public debate. New software, like cloud computing, is not currently part of the definition that makes it an eligible cost.

There is also a strong call for the government to consider the collection, storage, processing and interpretation of datasets as legitimate qualifying costs. Both of these things are written in as part of this consultation document.

As this has the potential to cost HMRC in increased R&D Tax Credit Scheme and RDEC payouts, they are also asking about where efficiencies can be made. Perhaps some of the things on the current qualifying costs list can be dropped because they are part of routine work. Therefore making the whole scheme cost effective and of high value.

What is not part of this consultation?

Understandably, consultations of these kind must be very specific. So they do outline related issues that are not part of this particular investigation. In this case, the following things are not applicable:

  • The Department of Business, Energy and Industrial Strategy’s definition and guidelines on research and development.
  • Other R&D support from the government. Such as research grants
  • The R&D SME Tax Credit PAYE/NICs cap that was the subject of a separate consultation.

Why should I contribute?

What else do you regularly pay for during your R&D activities that doesn’t come under HMRC’s definition of ‘qualifying costs’? I wonder how many other people think the same thing.

You may have had a moan to your R&D tax credit specialist about this unfairness. But you probably haven’t written to HMRC to tell them. You’re busy. And you’re working under the assumption that they won’t listen. But now is the time. The consultation part of any policy change is the government designating their own listening time. They want to hear from you now, as they are working on changes.

HMRC would like “all interested parties and stakeholders” to participate, especially:

  • “research intensive firms
  • firms otherwise making R&D tax credit claims
  • academic institutions (universities, scientific research bodies)
  • business groups”

There are only ten questions in total, subdivided into categories: data, software (cloud computing), indirect activity and routine work.

All you have to do is email rdtaxexpenditures@hmtreasury.gov.uk with your answers by 13th October.

We think it’s definitely worth getting involved in anything that shapes the future of this excellent tax relief.

Jamie Smith