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Autumn Budget: Cloud, data costs to be eligible for R&D tax relief

Today's Autumn budget has drawn a distinctly mixed reaction from across the business and technology worlds -- as organisations digest a flurry of new initiatives including the pledge to boost public R&D to $20 billion, quadruple places on "skills bootcamps" (free courses of up to 16 weeks), overhaul business rates, and more.

(You can read the full Autumn Budget here).

The addition of data and cloud computing costs as "qualifying expenditure" under the government's R&D tax reliefs scheme was among the early standouts for businesses: a decision the Chancellor described as "reinforcing the UK’s status as a science superpower."

The move was particularly welcomed by/a huge success for techUK, which had called for reform of the R&D tax credits scheme in its submission to the Budget, and specifically urged that "the scope of qualifying expenditures should be expanded to cover key intangible assets, with a specific ask to include data, data analytics and cloud computing."

The additions will be legislated for in Finance Bill 2022-23 and take effect from April 2023, with more details to be set out "later in the autumn." As ever, the devil will be in the detail: many CIOs and CFOs will await those details with keen attention. As Priya Raju, Director of Cloud Transformation, KPMG UK, noted: "Looking at today’s successful businesses, they all have one thing in common: they are all looking to leverage their data as much as possible. By extending R&D tax reliefs to data and cloud, in theory, more UK organisations can benefit from the benefits that better data storage, management and analysis can bring."

She added: “Cloud and data are necessities for any business that wants to digitally transform. Companies – banks in particular – are struggling to implement cloud and data because the costs are often incredibly prohibitive. What’s more, with the volume of data growing exponentially (by 2025, estimates predict that the amount of data generated each day will reach 463 exabytes globally), these associated costs are only going to skyrocket. While today’s announcement is designed to help soften that blow, questions remain about the actual benefits the announcement will generate. Ambiguity around what the Government classifies as R&D could mean that the reliefs sound better on paper than they are in practice.”

Further details on "cyber" later this Autumn...

Featuring 63 mentions of "innovation", 62 mentions of "data" and 37 mentions of "technology", with 13 mentions of "cyber", the budget also noted that the government would be investing £2.6 billion in "cyber and legacy IT" over the coming year, "with a particular emphasis on improving the government’s own cyber security" -- whilst promising further details on the strategy for cyber "shortly".

A wordcloud of the Autumn Budget

CBI Director-General Tony Danker said in rapid response to the budget on Twitter: "Government commitment to innovation will be a central cog to UK. It’s vital to leading the industries of the future so we need to stick to targets going forward."

He added: "Firms will welcome skills boot camps. This agile approach must now be the watchword when it comes to revolutionising the skills landscape - especially when it comes to apprenticeships. But whilst firms will welcome today’s measures, we remain in a high tax, low productivity economy with concerns about inflation. This budget missed the opportunity to redress those challenges with a major focus on investment and growth."

Mariano Dima, President & Board Director at fintech Soldo, added: "“With the announcement of a £1.4bn fund to promote inward investment, the extension of Help to Grow - which provides tech education and software discounts - and the expansion of tax relief to cover cloud and data costs, the Government has shown that it understands the needs of the six million SMEs in the UK. Many still remain exposed post-pandemic. Innovation and digitalisation hold the key to their full recovery, which will in turn stimulate economic growth and support a reduction in the UK’s public debt."

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