The CIOT has responded to HMRC’s consultation on draft guidance which will ultimately accompany the proposed April 2023 changes to research and development tax reliefs. Key comments include:
The guidance under the ‘Overseas Expenditure’ heading as to which payments are subject to PAYE and NIC does not provide a clear and accurate explanation of the position.
Qualifying overseas expenditure depends on the conditions necessary for the R&D not being available in the UK, and it being ‘wholly unreasonable’ to replicate those conditions in the UK. The draft guidance extends these requirements to third parties – potentially denying relief to a company where the R&D is carried out overseas by a third party over which the company has no control and which may or may not decide to make the necessary adaptations. As the CIOT comments: ‘It does not seem fair to deny a company relief as a result of what a third party, over whom they may have no influence, does or does not choose to do. It would also be very difficult for HMRC to test compliance with this requirement’.
The description in the draft guidance of companies that need to provide a claim notification is inconsistent with the equivalent description in the draft legislation, and clarification is therefore required (although the CIOT finds legislation to take the better approach).
In the guidance on ‘data licences and cloud computing services’, discussion around a licensee obtaining ownership of a data set seems confusing, given that licensees do not acquire ownership.
The CIOT has responded to HMRC’s consultation on draft guidance which will ultimately accompany the proposed April 2023 changes to research and development tax reliefs. Key comments include:
The guidance under the ‘Overseas Expenditure’ heading as to which payments are subject to PAYE and NIC does not provide a clear and accurate explanation of the position.
Qualifying overseas expenditure depends on the conditions necessary for the R&D not being available in the UK, and it being ‘wholly unreasonable’ to replicate those conditions in the UK. The draft guidance extends these requirements to third parties – potentially denying relief to a company where the R&D is carried out overseas by a third party over which the company has no control and which may or may not decide to make the necessary adaptations. As the CIOT comments: ‘It does not seem fair to deny a company relief as a result of what a third party, over whom they may have no influence, does or does not choose to do. It would also be very difficult for HMRC to test compliance with this requirement’.
The description in the draft guidance of companies that need to provide a claim notification is inconsistent with the equivalent description in the draft legislation, and clarification is therefore required (although the CIOT finds legislation to take the better approach).
In the guidance on ‘data licences and cloud computing services’, discussion around a licensee obtaining ownership of a data set seems confusing, given that licensees do not acquire ownership.
