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Draft Finance Bill 2022-23: corporation tax changes


Published: 22 Jul 2022 Update History

Changes confirmed and announced on 20 July include those to the R&D tax relief rules.

Amendments to R&D tax relief rules

A number of changes will be made to the R&D tax relief rules, applying to accounting periods beginning on or after 1 April 2023. These include measures relating to:

  • the definition of qualifying expenditure;
  • refocusing the reliefs towards innovation in the UK; and
  • tackling abuse and improving compliance.

Qualifying expenditure

As previously announced, this will now include the costs of datasets and cloud computing. Pure mathematics will no longer be excluded.

A refocus towards the UK

Where relief is claimed for the cost of R&D sub-contracted to another entity or carried out by externally provided workers, it will either need to be undertaken in the UK or meet the requirements of being “qualifying overseas expenditure”.

Based on the draft legislation published on 20 July 2022, expenditure qualifies as overseas expenditure if there are conditions present overseas that would be wholly unreasonable for the company to replicate in the UK. These include environmental conditions (eg, deep ocean research) and regulatory or other legal requirements for certain activities to take place in specific territories (eg, clinical trials).

Tackling abuse and improving compliance

Various new requirements will be placed on R&D claims, such as informing HMRC of any new claims via a digital service within six months of the end of the period to which the claim relates. This requirement will not apply if the company has claimed R&D tax relief in one of the three preceding periods.

The claims themselves will also need to be made digitally (unless the company is exempt from the requirement to deliver a company tax return online). The claims must include a breakdown of qualifying costs and be endorsed by a named senior officer of the company.

More details on the requirements:

Research and Development Tax Relief changes

Other corporation tax changes

A number of small changes will be made to the qualifying asset holding companies (QAHC) regime to ensure that the definition of a QHAC better aligns with the intention of the regime:

  • the QAHC pays no more tax than is proportionate to the activities it performs; and
  • investors in the QAHC are taxed as if they had invested directly in the underlying assets.

For double tax relief claims on or after 20 July 2022, it will not be possible to make extended time limit claims under s79, Taxation (International and Other Provisions) Act  2010 or s806(2), Income and Corporation Taxes Act 1988, where the adjustment giving rise to a claim for credit is solely calculated by reference to a foreign nominal rate of tax. The extended time limit claims provisions apply where a double tax credit has become excessive or insufficient as a result of a change in UK or overseas tax payable. Claims will need to relate to actual amounts of tax, rather than nominal rates. This measure was announced in a written ministerial statement on 20 July.

HMRC has also published a summary of responses to the consultation held over winter 2021/22 to look at the corporation tax implications of the new international accounting standard for insurance contracts (IFRS 17). The regulations will be laid during autumn 2022 to apply to accounting periods beginning on or after 1 January 2023. Draft regulations will be published for consultation during summer 2022.

The aim of these regulations is to mitigate the tax consequences of the introduction of IFRS 17. The regulations will include the following.

  • The starting point for calculating the IFRS 17 transitional adjustment will be a comparison of the retained earnings figures in the company’s accounts before and after the adoption of IFRS 17.
  • The adjustment is to be spread over 10 years on a straight-line basis.
  • Section 79, Finance Act 2012 (which requires life companies to spread acquisition expenses over seven years for tax purposes regardless of when they are recognised for tax purposes) will be repealed from 1 January 2023. The government will continue to allow companies to spread relief for previously incurred expenses while ensuring there is no double deduction of expenses.
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