Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to the statement on page 31 of the Spring Statement that the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost and that the Government will legislate so that expenditure on overseas R&D activities can still qualify, what assessment has been made of the financial implications of that matter; and what the rationale was for that decision.

The Government recognises that pure mathematics research underpins wider R&D expenditure. It is therefore right that expenditure on mathematical research should be considered as qualifying expenditure for tax reliefs. This reform will support sectors where the UK has a comparative advantage such as AI, quantum computing, and robotics, while also supporting sectors such as manufacturing and design. The Government believes this reform will have negligible effects on the public finances.

There has been a rise in claims for tax credits in recent years, but these have not doubled in the period between 2018-19 and 2019-20. In 2019-20, 82,950 companies submitted claims, of which 9,675 were for R&D expenditure credit (RDEC) and 76,225 were for the small or medium-sized enterprise (SME) scheme. This compared to 71,760 claims in the previous year, of which 8,725 were for RDEC and 65,480 were for the SME scheme. Regional analysis into the location of where the R&D takes place does not exist, as only the locations of companies’ registered offices are recorded.

The Government is currently undertaking a review of R&D tax reliefs, to ensure the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose, and that taxpayer money is effectively targeted. The review is also considering reasons for why the cost of support for both schemes has increased substantially in recent years. As announced at Spring Statement 2022, the Government will consider further reforms ahead of the Autumn.