The government has made a clear statement of intent to support the technology sector with its recent announcements on R&D tax relief – a government incentive designed to reward UK companies for innovation in science and technology
As a result of this increased scope, the way ahead is clearer for tech innovators.
For many years, two stumbling blocks lay in the path of businesses using artificial intelligence (AI), quantum computing and pure mathematics when looking to embrace the incentive. Firstly, the omission of pure mathematics from the definition of qualifying R&D relief added an extra layer of uncertainty to claims. Secondly, the significant costs of cloud computing did not qualify for relief either, meaning that firms investing in this type of innovation were not supported for all of their activities and relevant costs in a way that had kept pace with changing technology and practices.
But cloud computing and innovation have become ever more entwined. After all, why should an AI innovator be out of pocket for the mathematics or computing power needed to develop new solutions?
Changes announced in the Spring Statement 2022 will see both of these obstacles addressed in policy by April 2023. With this, the tech sector, and in particular businesses using AI, quantum computing and pure mathematics, can apply for relief with greater confidence.
Of course, with more money on the table, comes greater risk of scrutiny from HMRC. However, this shouldn’t deter companies from making R&D tax relief claims if their work falls within the scope of the relief.
What the changes mean in practice
Simply put, new opportunities will appear for tech firms after the widened scope comes into effect. For instance, the inclusion of pure mathematic means that firms advancing this theoretical field will be in a position to access relief for the first time. And those that rely on datasets to achieve technological advances can look forward to a potential increase in the amount of relief available.
However, most eyes are fixed on the addition of cloud computing costs.
As most businesses in the tech sector will know, cloud computing isn’t a marginal cost. The sheer power that goes into creating, maintaining, running, and storing machine learning (ML) and AI solutions, training data sets, models and simulations can be a huge, unavoidable overhead of R&D.
While this remains the case, the impact of cloud computing’s inclusion into the scope of R&D tax relief will be that firms can start to recoup some of this investment, allowing them to redirect funds to other areas of R&D or put additional budget behind compute power.
Optimising your claim
Engaging with a trusted adviser can help when it comes to implementing new processes for your R&D claim, especially if you are looking to claim significant sums of money. When looking for a trusted partner, don’t assume that all advisers are properly qualified nor that they have the best interests of your business at heart. Seeking the support of an adviser with strong credentials will leave your business with peace of mind that you R&D tax relief claim is robust.
Advisers with genuine sector experience will know the ins and outs of the changes and will be able to advise on the best course of action for your business on a case-by-case basis. Keep in mind that a one size fits all approach is less likely to stand up to scrutiny from HMRC, so having an adviser on hand who understands how to apply the new rules to your case will set you up for success.
At ForrestBrown, we welcome these changes, but recognise that there is still significant untapped opportunity to use R&D tax relief to supercharge UK business investment in R&D. Nevertheless, these upcoming changes to R&D tax incentives prove that the government is willing to step up its support for the UK tech sector as it continues to thrive. With the proper advice and approach, the new, clearer road to R&D tax relief is an exciting prospect for those already innovating and those seeking to.
About the Author
Tom Heslin is Associate Director and software expert at ForrestBrown. Unmatched specialist expertise, on your terms. ForrestBrown is the UK’s leading specialist R&D tax credit consultancy. Our strategic advice ensures our clients get the credit their innovation deserves and secures them vital funding to accelerate their growth plans.
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