Autumn Budget 2021 – R&D Tax Relief, Capital Allowances
The Chancellor of the Exchequer presented his Autumn Budget and Spending Review to Parliament on Wednesday 27 October 2021. We look at what changes are forthcoming for R&D tax relief and capital allowances.
R&D Tax Relief
Following the consultation launched at Spring Budget 2021, R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs, to more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and to target abuse and improve compliance. These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023. Further details of these changes and next steps for the review will be set out as part of the government’s further tax administration and maintenance announcements later in the autumn.
In addition, The Chancellor also hinted that costs relating to overseas R&D expenditure may be restricted in the future. While UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019, the ONS estimates that businesses only carried out £25.9 billion of privately financed R&D in the UK. This gap is partly explained by companies being able to claim for activity taking place overseas. This suggests that the UK is not effectively capturing the benefits of R&D funded by the UK taxpayer through the reliefs. To more effectively capture the benefits of the reliefs, including improved skills, know-how and understanding, the government will refocus the reliefs towards innovation in the UK.
As expected, the government will also set out plans to tackle abuse of and improve compliance with the R&D tax reliefs later in the autumn.
Capital Allowances
The budget confirmed that the Annual Investment Allowance will remain at £1,000,000 annually until 1 April 2023, instead of dropping down to £200,000 on 1 January 2022 as previously planned. Together with capital allowances super deduction announced in the March 2021Budget, the run up to April 2023 remains an excellent time to invest in capital projects and assets. In many cases, most relief will be obtained using the super deduction and Annual Investment Allowance in combination, depending of the specifics of the business and expenditure.
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