Following a consultation on research and development (R&D) relief, the Treasury has set out a number of changes, some of which Chancellor Rishi Sunak first introduced in his Autumn Budget speech on 27 October 2021.

During his speech, Sunak announced reforms to R&D tax reliefs would reflect modern research methods by expanding qualifying expenditure to include data and cloud costs and only award projects carried out in the UK.

The Treasury report on R&D confirmed these policies detailed how datasets and staffing costs for the creation of datasets will also qualify for relief.

Companies that subcontract R&D activity to a third party will only be able to claim relief for expenditure where that party performs the work within the UK.

If a company subcontracts work for performance overseas, it won't be able to claim R&D tax reliefs on that expenditure, but will still be able to deduct those costs from its taxable profits, the Treasury's report confirmed.

The change comes after UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019 while only carrying out £25.9bn of privately financed R&D in the UK.

To improve compliance, the Government will also require claims for R&D reliefs to be made digitally, to be filled in more detail and endorsed by a named senior officer of the company, while companies will need to inform HMRC that they plan on making a claim.

The changes to R&D tax reliefs will come into effect from April 2023.

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