Kate Gott Corporate Tax Director

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Kate Gott

Corporate Tax Director

Kate joined Wilson Wright in 2016, having predominantly worked within the UK’s top 10 accounting firms over the previous decade.

She is a chartered tax adviser specialising in advising businesses and their owners. She works for a wide range of clients, including companies, LLPs and partnerships.

Her areas of expertise include research and development tax credit work, both international and domestic tax efficient structuring, transfer pricing, and due diligence. Kate also has significant experience of working with private equity structures and professional service firms.

She works closely with her clients to ensure they keep up to date with their tax compliance obligations and are aware of tax planning opportunities and changes to the tax legislation that may affect them.

4 Nov 2022

The Government has recently published draft legislation confirming the long-anticipated changes to the R&D regime from April 2023. There are some welcome changes, such as the extension to the categories of qualifying expenditure. However, other changes will need more careful consideration and planning.

New categories of qualifying expenditure

The draft legislation confirms that the categories of qualifying expenditure will be extended to include costs incurred in relation to:

• licence payments to access and use digital data; and
• cloud computing services that include the provision of access to, or maintenance of remote data storage, operating systems, software platforms and hardware facilities.

As anticipated, these costs cannot be included in the R&D claim unless they are directly linked to the underlying R&D activities.

Additional legislation will be introduced to extend the definition of qualifying R&D activities to include ‘pure mathematics’. Further information regarding the definition of ‘pure mathematics’ is due to be published at a future date.

This is welcome news, and we expect that this will significantly increase the scope of claims for clients involved in areas of development such as, artificial intelligence and quantum computing.

A focus on UK innovation

As outlined by the Government in the Spring Budget, the draft legislation aims at refocusing R&D tax incentives on UK based innovation. As a result, relief will be withdrawn for expenditure on R&D activities being carried out overseas unless it is required due to geographical, environmental, social conditions, legal or regulatory requirements. More specifically, externally provided workers (EPWs) will need to be paid via a UK payroll.

Whilst we encourage a focus on UK innovation and welcome the exceptions introduced to tackle some situations where a company has no option to use UK based expertise, we expect that the introduction of these additional requirements will have an adverse impact for many of our clients, particularly those who are utilising the expertise of international colleagues with the current availability of relief for connected party EPWs.

Prenotification of claims

Several measures have been introduced by the draft legislation with a view to tackling abuse. One such measure is the requirement to pre-notify HMRC of claims if:

• the company is making a claim for the first time; or
• the company has not made a claim in the previous three years.

The notification must be made within six months of the accounting period end date for which the claim is intended to be made. Currently a company can make a claim up to two years following the accounting period end date and no notification is required.

This additional requirement to notify is concerning and without careful planning a company will find itself in a position where it is unable to make a claim.

Additional information to be included within claims

Under the draft legislation, HMRC has the power to introduce regulations which would require companies to submit additional information alongside a claim. This will include:

• A description of the R&D activities carried out;
• A breakdown of qualifying costs;
• An endorsement by a senior officer of the company; and
• Details of the agent who has provided advice in relation to the R&D claim.

The R&D team at Wilson Wright already include this information within the claims prepared and submitted on behalf of our clients, with the exception of the specific endorsement by a senior officer of the company on the report submitted, however, this is inferred from the overall approval of the tax return for submission. As such, we do not anticipate the introduction of these measures to impact our clients.

Overall, these additional measures should reduce the number of abusive claims that are submitted to HMRC and will ensure that the company has thoroughly understood the submission that is being made on their behalf. We also believe that this will reduce the number of unregulated agents currently acting in the R&D space. We believe measures should be taken by HMRC to impose penalties on unregulated agents that are providing substandard advice.

The House of Lords Finance Bill sub-committee inquiry

On 14 October 2022, the House of Lords Finance Bill sub-committee announced that it was inviting contributions to its inquiry on the draft Finance Bill 2022-23. The sub-committee will focus on the reforms to R&D tax relief included within the draft Bill. Wilson Wright will be providing input.

If you do have any queries regarding the above, please contact our R&D specialist, Kate Gott.