In their Spring 2022 Statement, Chancellor of the Exchequer Rishi Sunak has extended the government’s research and development (R&D) tax relief scheme in a bid to improve innovation and productivity in the UK.
Sunak announced that beginning in April 2023, all cloud computing costs associated with R&D, including storage, will now qualify for tax relief.
Measurement is the last step in a reform plan announced in the October 2021 Budget. According to HM Treasury figures, UK companies applied for tax relief on £47.5bn of R&D spending in 2019, although the Office for National Statistics estimates that UK companies alone undertook £25.9bn of privately funded R&D.
“This will allow companies to reclaim costs related to the storage of vital data, supporting data-intensive research such as genome sequencing,” he said. SM Treasury Documentation published together with the Spring Declaration.
The definition of R&D for tax relief will also be expanded to include pure mathematics as a cost of qualification.
“This reform will support emerging sectors in which the UK has a comparative advantage, such as artificial intelligence, quantum computing and robotics, while supporting strong sectors such as manufacturing and design,” the Treasury documentation said. .
Sunak said UK business R&D investment is less than half the OECD average as a percentage of GDP. The new relief is intended to “provide better value for money for the taxpayer while being more generous where they can make the biggest difference,” a Treasury statement said.
The R&D tax reforms follow other measures previously introduced by the government to support innovation and investment in technology.
In the March 2021 Budget, Sunak launched a program called Help to Grow: Digital to help 100,000 SMEs become more productive and profitable by adopting productivity-enhancing software, offering a 50% discount on the cost of such tools, worth up to £5,000.
The first phase of the Help to Grow program began in July 2021aimed at vendors within the customer relationship management, accounting, and e-commerce software markets to register as approved vendors.
In the Spring Statement, Sunak also announced a new cabinet committee on efficiency and value for money, which he will chair, to reduce £5.5bn worth of Whitehall waste, an initiative likely to include digital projects. Any savings will be used to finance public services, he said.
Tax relief measures are mainly aimed at helping SMEs to grow. However, Paul Christensen, chief executive of Previse, a fintech provider likely to be the type of company Sunak hopes to benefit, said the government needs to introduce measures more relevant to the challenges facing companies like his.
“Simply saying the UK is a global tech hub doesn’t make it one,” Christensen said.
“The low uptake of general measures like Help to Grow: Digital suggests that the government’s ‘one size fits all’ approach to recovery lending will not be enough to fuel economic growth. Traditional financing for SMEs is clunky, difficult to obtain and expensive when it is available.
“Using technology to modernize B2B commerce and provide businesses with flexible and integrated financing could go a long way to ensuring that SMEs are not left behind as the economy seeks to catch up.”
Technology trade body TechUK welcomed the R&D reforms but agreed more needs to be done.
“The proposals tabled today to further extend R&D tax credits and consult on ways to maintain the capital expenditure tax deduction have the potential to unlock further investment in innovation in the UK,” said TechUK CEO, Julian David.
“However, to do this well, the government must ensure that the software and intangible assets that drive modern business investment remain within reach. Otherwise, the government risks missing out on the opportunity to unlock the potential of technology-driven growth.”
Concerns were also raised from a source closer to the chancellor.
Andrew Duncan, UK CEO at Infosys Consulting, the global consulting arm of Indian tech giant Infosys, welcomed the addition of cloud and storage for tax relief but said the UK’s innovation and productivity gap Kingdom should fill up quickly.
Sunak’s father-in-law, NR Narayana Murthy, is chairman emeritus and co-founder of Infosys.
“R&D tax relief and government support for innovation were not as focused as I had hoped, and the government delayed confirming much of its support in this area until the fall,” Duncan said.
“Supporting the UK’s digital reskilling agenda is a top priority, especially as business leaders scramble for top talent in this challenging environment. The government’s help-to-grow programs are positive steps in this direction, but there is still some way to go to bring about real change by engaging big business.”