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R&D tax credit consultation responses – ForrestBrown policy-level insight

Jenny Tragner
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At ForrestBrown, we believe in the power of R&D tax credits – we are passionate about the transformative impact the incentive can have for businesses and the wider economy. This is why we work proactively with government and industry bodies to strengthen and improve R&D tax credits for everyone: taxpayers, businesses and society at large. Consultation responses are a vital way for ForrestBrown to influence the government’s R&D tax credit policy with our expert, on-the-ground insight. Our consultation responses enable us to share with government and HMRC not only our own views, but the direct experience and opinions of our clients.

Jenny Tragner CA ATT (Fellow)


Jenny Tragner CA | Technical Director

Jenny holds a seat on HMRC’s R&D Consultative Committee. In 2020, her work enabled the CIOT and professional bodies to introduce, for the first time, professional standards for chartered R&D tax advisers.

Jenny Tragner

Tom Heslin MSc

Associate Director

Tom Heslin MSc | Senior Sector Specialist

Tom was a member of the working group which authored HMRC’s latest guidance on what constitutes software R&D. He was invited by the group to present its findings to the R&D Consultative Committee prior to publication of the guidance.

Tom Heslin technical specialist

Lisa-Marie Smith CTA

Director & Vice-Chair

Lisa-Marie Smith CTA | Director

As an expert on the interaction between State aid and R&D tax credits, Lisa was invited as a guest speaker at HMRC’s annual R&D conference.

Lisa-Marie Smith director

We share these responses with you below because we believe in transparency and bringing the industry forward to inspire more businesses to unlock the full power of their innovation. We’ve included summaries along with links to the full consultation responses so you can read our insights and recommendations in more detail.

R&D tax relief report | October 2021

What is it?

In his Autumn Budget 2021, Chancellor Rishi Sunak shared some proposed measures designed to reform the R&D incentive. These changes followed on from the R&D tax reliefs consultation. The accompanying R&D tax relief report outlined these proposed changes in more detail.

What did we say?

After careful consideration and consulting with our clients, ForrestBrown submitted a detailed response to the government’s report. We supported some measures, but made strong recommendations around other proposed changes where more consideration was required.

How the government responded

In his 2022 Spring Statement, the Chancellor took industry feedback on board. In particular, Rishi Sunak addressed a point of particular concern: Overseas R&D. In his speech, Sunak announced sensible exceptions to the restriction on including overseas R&D costs in an R&D tax relief claim.

The Chancellor followed suit in updating his previously announced plans for expanding R&D tax relief to include data and cloud costs. He confirmed that data storage costs will be eligible and also announced that advances in pure maths will attract relief in the future.

These changes are due to come into force in April 2023.

R&D tax relief | March 2021

What is it?

In his Budget 2021 address, Chancellor Rishi Sunak announced a broad consultation on the nature of private-sector R&D investment in the UK. This consultation will explore how that investment is supported or otherwise impacted by the R&D tax incentives, and where changes may be appropriate.

What did we say?

After consulting with our clients, ForrestBrown submitted a detailed response to the government’s consultation. We urged the UK government to use this consultation as a chance to create a coherent, long term platform for R&D tax relief, with greater flexibility to adapt as priorities change.

To do achieve this, we highlighted three clear priorities: An updated, more modern definition of ‘R&D’, better regulation of the incentive, and streamlining the rules.

How the government has responded

In November 2021, the government published a report on this consultation. The document provides further detail on changes to R&D tax relief which were announced by the Chancellor in his Autumn Statement:

  • Expanding qualifying expenditure to include data and cloud costs.
  • Refocusing the relief towards innovation in the UK.

It also sets out the next steps for the review of R&D tax relief and includes a summary of responses received to the original consultation.

The consultation response includes a number of proposed measures to target abuse of R&D reliefs and improve compliance:

  • All R&D tax relief claims to be filed digitally (with limited exception).
  • Businesses must provide more detail on what expenditure the claim covers, the nature of the advance sought and the uncertainties overcome.
  • Every claim must be endorsed by a named senior officer of the company.
  • Companies will need to inform HMRC, in advance, that they plan to make a claim.
  • All claims to include details of any agent who has advised the company on compiling the claim.

Data and cloud computing expenditure | July 2020

What is it?

The Treasury is considering a modernisation of the software costs category, to include expenditure on data and cloud hosting, which are currently excluded from the scope of R&D relief. They have also asked for views on potential areas where relief could or should be restricted, in particular supporting or routine activities.

What did we say?

We spoke to a number of our clients who joined us in welcoming this modernisation of a category which hasn’t been amended since its introduction in 2004. Over that period, we have all experienced the pace at which software is influencing our lives, and its role in R&D has progressed at a similar pace.

Our response also raises concerns about a ‘quid pro quo’ approach to updating R&D tax relief, as well as the potential negative impact of tinkering with a relief that may be due a more substantive review to ensure its effectiveness in future years

How the government has responded

In his Autumn Budget address, Chancellor Rishi Sunak confirmed that qualifying expenditure for both reliefs will be expanded to include data and cloud computing costs. The changes are to ensure the reliefs better incentivise cutting edge R&D that relies “on vast quantities of data that are analysed and processed via the cloud”.

UK Research and Development Roadmap | July 2020

What is it?

The government has published a roadmap for improving R&D investment in the UK. It is full of ambitious promises to make the UK the centre of global research, particularly in health, environment and economic recovery from the coronavirus.

What did we say?

The Roadmap doesn’t say very much at all about R&D tax incentives, despite them being widely accepted as vital to encouraging private sector investment in R&D.

We recommended a full review of the R&D tax incentives in the UK, to look at the definition of R&D, eligibility criteria and expenditure categories. We also recommend the introduction of a simpler incentive and process for very small R&D claims.

Raising Standards in the Tax Advice Market | March 2020

What is it?

A government consultation on whether and how to regulate the tax advice market. This is obviously much broader than R&D tax relief, but the R&D tax market is mentioned in the consultation document as an area where poor advice adversely affects claimants and taxpayers.

What did we say?

We recommend that the existing tax and accounting professional bodies play a more prominent role in monitoring and regulating their members. HMRC should help by endorsing the actions of the professional bodies, to raise awareness among taxpayers of the protections afforded them by working with a regulated adviser.

Improving data collection, analysis and reporting at HMRC will also be vital to understanding the impact of poor advice on taxpayers and R&D tax incentives, and enabling HMRC to focus compliance efforts.

Long term, we support a move to require professional body membership for any firm offering paid-for tax advice and services.

How the government has responded

In November 2020, the government published its first response to this consultation, in which it proposed compulsory professional indemnity insurance for tax advisers and accountants.

The summary of responses set out the government’s plan to:
• Raise awareness of HMRC’s Standard for Agents and review HMRC powers to enforce the Standard.
• Consult on introducing a mandatory requirement for tax advisers to hold professional indemnity insurance.
• Work collaboratively with the existing professional bodies to understand their role.
• Take steps to tackle the high cost to consumers of claiming R&D tax refunds.

In November 2021, following strong opposition to this proposal, the government confirmed that it would not be pursuing compulsory PII.

The push for better regulation of tax advice has gained substantial momentum in recent times and we await further consultation on the matter.

Preventing Abuse of the R&D Tax Relief for SMEs | March 2019 & March 2020

What is it?

Legislation aimed to deter abuse by placing a cap on the amount of cash credit SMEs can claim, linked to the company’s total PAYE and NIC liabilities for the period. After two previous consultations (both of which ForrestBrown responded to), the government has now published its draft legislation. The amount of payable credit that a qualifying loss-making SME can receive in any one year will be capped at:

  • £20,000 plus three times the company’s “relevant expenditure on workers”.

The cap won’t apply to if the business can evidence that it actively manages any IP resulting from R&D activities, and that its expenditure on connected-party subcontractors or EPWs is below 15% of its total R&D spend.

What did we say?

We welcome the added measures to limit the impact of the cap on genuine claimants. However, we remain concerned that even with these amendments, some genuine businesses will be adversely affected by the cap. It is a very blunt instrument which will introduce complex rules designed to prevent fraud, which by its very nature involves not following rules.

Comments on the draft legislation can be made until 7 January. The legislation will be included in Finance Bill 2021 and come into force for accounting periods beginning on or after 1 April 2021.

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