Draft guidance: Research and Development (R&D) tax reliefs: new contracting out rules and overseas restrictions
Read the full outcome
Detail of outcome
HMRC published draft guidance on 9 February 2024 ahead of the implementation of reforms to the research and development (R&D) tax reliefs. This included new draft guidance on contracted out R&D activities and updated draft guidance on the overseas rules.
The government is grateful for the 20 responses received. Those responding included individuals, industry groups, businesses, accountants, agents and accountancy professional bodies. The responses included comments on drafting, requests for additional examples and clarification on specific points. There was also praise for the clarity of the guidance in places.
By taking into account the feedback received from stakeholders in response to the draft guidance, we were able to integrate changes that have enhanced the overall quality of the guidance.
HMRC will incorporate the guidance into the Corporate Intangibles Research and Development Manual in due course.
Original consultation
Consultation description
At Spring Budget 2021, the government announced a review of the Research and Development (R&D) tax reliefs. The objectives were to ensure that the UK remained a competitive location for cutting edge research, that the R&D reliefs continued to be fit for purpose, and that taxpayer money was effectively used. The government concluded the review at Autumn Statement 2023 with the announcement of the R&D merged scheme.
At Autumn Budget 2021, the Chancellor announced reforms to support modern research methods. They included expanding the R&D reliefs to cover data and cloud costs, refocusing support towards innovation in the UK, and changes to target abuse and improve compliance. HMRC published draft guidance on the implementation of these reforms in December 2022. The government is grateful for the 63 responses received. Respondents included individuals, industry groups, businesses, accountants, agents and accountancy professional bodies.
At Spring Budget 2023, the government announced that the measures to refocus R&D relief on innovation in the UK will come into effect from 1 April 2024 instead of 1 April 2023. This allowed the government to consider the interaction between this and the design of a potential merged R&D relief.
At Autumn Statement 2023, the government confirmed the introduction of the merged R&D expenditure credit and changes to the way contracted out R&D activities will be treated from 1 April 2024. The government confirmed that the overseas rules will apply from 1 April 2024 too. Legislation on the new merged R&D expenditure credit and the enhanced support for R&D intensive lossmaking Small and Medium Enterprises is included in the Finance Bill.
Today, ahead of the implementation of the reforms to the R&D tax reliefs, HMRC is publishing for consultation:
- new draft guidance on contracted out R&D activities
- updated draft guidance on the overseas rules
The guidance on the overseas rules takes account of comments received in response to the December 2022 draft.
It also reflects changes in the legislation, particularly that the term “Qualifying Overseas Expenditure” is no longer used.
You can share your thoughts and suggestions about the draft guidance by 1 March 2024 by emailing randd.policy@hmrc.gov.uk.
Documents
Updates to this page
Last updated 27 March 2024 + show all updates
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Published a summary of the outcome of the consultation, and an updated version of the draft guidance as a result of consultation feedback and responses.
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First published.