ICAEW supports review of R&D expenditure

12 October 2020: ICAEW has backed plans to review qualifying R&D expenditure to ensure it’s well targeted and reflects modern processes but encouraged HMRC to consider how it might reform R&D relief to support all industries.

In ICAEW REP 91/20 (Scope of qualifying expenditures for R&D tax credits) ICAEW supports HMRC’s desire to ensure that any changes to the current scope of R&D tax relief will help drive decisions to make new investments, thereby providing relief in a cost-efficient manner which ultimately maximises value for the Treasury.

The consultation also seeks to identify areas where current eligible costs could be considered as routine work and should not be receiving relief. However, discussions with members indicate that there is only limited capacity to restrict qualifying expenditure on the basis that it did not appear to contribute to the R&D project or was ‘routine’ in any event.

The consultation focuses on qualifying expenditure in the context of cloud computing and data. If the overall objective is to increase genuine R&D activity by expanding the scope of qualifying expenditure, members considered the focus on cloud computing and data was quite a niche approach to achieve this.

ICAEW members also raised concerns that the focus could create uncertainty in sectors outside of the technology industries which rely heavily on R&D and are of significant public interest such as life sciences.

The Tax Faculty also encouraged HMRC to consider some inconsistencies in how the law around qualifying R&D expenditure applies in practice.

Some of these anomalies result from a discrepancy in the eligibility of the same costs depending on whether they were ‘in-house’ or outsourced. This seems at odds with the objective of the legislation.

ICAEW will continue to work with HMRC as this consultation develops and clarity emerges over how any changes will work in practice.