Research and development tax reliefs can be very generous for small companies, giving a deduction of 230% of qualifying costs.
However, the categories of expenditure which qualify for R&D relief were defined over 20 years ago and do not include costs of a typical internet-based business.
From April 2023 cloud computing and data costs will be qualifying expenditure categories for R&D relief. These are both very broad concepts, and we will have to wait for guidance from HMRC and the new law to determine exactly what will be allowed.
The R&D tax relief scheme has unfortunately been the target of abuse and fraudsters. The Government intends to clamp down on such abuse and improve compliance through various measures, including limiting the R&D tax relief to work undertaken in the UK.
More detail on the new conditions for R&D tax relief is expected to be announced in the coming weeks.
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