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Cloud Computing and Data costs to be covered as part of expanded R&D Tax Credits scheme

Cloud Computing and Data costs to be covered as part of expanded R&D Tax Credits scheme

From April 2023, coverage of the R&D Tax Credits scheme will be expanded to include data and cloud computing costs as qualifying expenditure.

The move comes off the back of advocacy from UK technology firms and R&D specialists who have long been urging the Government to expand the scope of qualifying expenditure to cover key intangible assets such data, data analytics and cloud computing.

The Government has stated that these extra reliefs will help to further support modern research methods and will take effect from April 2023. This modernisation will ensure the reliefs better incentivise cutting edge R&D methods which rely on vast quantities of data that are analysed and processed via the cloud.

As a result, the following new categories of expenditure will be brought into scope:

  • licence payments for datasets
  • cloud computing costs that can be attributed to computation, data processing and software

We welcome the Government’s acknowledgment that datasets are an essential R&D input for companies across a variety of sectors, not less those where the most cutting-edge computational R&D activities are taking place. Thus, datasets are now acknowledged as being as vital an ingredient as raw materials or labour inputs which may be employed in manufacturing or engineering fields of R&D. This will also include costs for staff-related expenditure for the purpose of collecting, cleansing and analysing data in relation to qualifying R&D projects.

UK Businesses have made their position to the Government clear that where their research is data intensive, they often rely on third party processing capacity and analytical tools to manage this data. These capabilities are often accessed via the cloud, which is typically the most effective way to achieve required results. It is for these compelling reasons that businesses will now be able to claim relief for the cost of such services used directly for their R&D projects.

As companies evolve in how they use technologies to achieve continuous growth in the modern world, the adoption of cloud computing services increased in the UK, driven in principle by the impact of the COVID-19 pandemic and the shift to hybrid working patterns amongst UK employees and their employers. Research conducted by Centrify revealed that more than half of UK business leaders believe investment in cloud computing services “saved” their businesses during the pandemic and its subsequent lockdowns, and almost two thirds plan to continue to increase their cloud usage.