Additional Cost Category:

R&D Tax Credit Changes Explained

During the 2021 Autumn budget, the government confirmed the addition of an extra R&D tax credit cost category: data and cloud computing. This announcement has been much anticipated following the 2020 consultation on qualifying criteria and has been welcomed by companies and advisors alike.

Matthew Jones, managing director, LimestoneGrey, commented:

Matthew Jones, managing director, LimestoneGrey, chartered R&D tax credit consultancy

Matthew Jones

Managing Director

‘The announcement to include data and cloud computing costs as a qualifying R&D tax credit expense category is a step in the right direction to ensure the relief is fit for purpose for modern research and development techniques. The way in which companies conduct R&D has vastly changed since the scheme’s introduction back in 2000 so it is only right that the relief evolves too.’

Inclusion of Data and Cloud Computing Costs

At present, there are six cost categories of qualifying expenditure:

Staff Costs

Externally Provided Workers

Subcontracted R&D Activities



Payments to Clinical Trial Volunteers

The software category only covers downloadable software used to undertake specific R&D activities. The inclusion of data and cloud computing costs will ensure that the relief better incentivises cutting edge R&D methods that rely on vast quantities of data, that are analysed and processed via the cloud, and modern cloud hosted software applications.

But what does this mean in practice?

The government intends to include the following costs into the qualifying expenditure mix.

Licence payments for datasets

Following the consultation, it was clear that datasets can be a vital research and development tool for companies across many sectors, but particularly for those in high tech, computational based companies.

Therefore, expenditure for licence payments on purchasing datasets which are used directly for R&D in a qualifying R&D project will qualify for the relief, so long as the dataset:

  • is not resold
  • has no lasting value to the business beyond the duration of the project

This is to ensure that company only claims for costs incurred solely for the R&D project and not for costs that can be recovered overtime.


An end-user access agreement or license between the claimant and the owner of the data will not qualify if it grants:

  • any rights of resale over the data
  • the claimant any rights to publish, share or otherwise communicate the raw data within the dataset to a third party
  • any ongoing rights of use, beyond the expected term of the R&D project

Cloud Computing and Software

The consultation revealed that where research is data intensive, companies rely on third party processing capacity and analytical tools to interrogate the data, with businesses accessing these capabilities via the internet or ‘the cloud’. Responses showed that this is the most effective way of performing this activity, and in some instances, the only viable way to achieve the required outcome.

Taking this into consideration, the government will now include the cost of cloud computing services used directly for R&D purposes as part of the qualifying expenditure list, including costs which can be attributed to:


Data Processing




Not all costs that are commonly included in a cloud computing package relate to these two categories. An example of this relates to general overheads such as servers and data storage. The government will continue their current stance that the relief does not cover general overheads.


Matthew Jones commented further: ‘It can be so important to engage with an R&D tax credit specialist before you undertake your R&D activity. They will be able to provide advice and guidance on rules and regulation throughout the project to ensure that you are aware of what can and cannot be claimable. The limitations to end-user access agreements/licenses is a good example of how an advisor can use their knowledge and expertise to advise a client on viable spend.’

R&D Tax Credits in Practice

A sector that will greatly benefit from the inclusion of these additional cost categories is Fintech. Sarah Williams-Gardner, CEO at Fintech Wales, also sees value in these proposed changes.

Sarah Williams-Gardner, CEO Fintech Wales

Sarah Williams-Gardner

CEO, Fintech Wales

‘The UK has shown a great tradition for innovation in the Financial Services sector, with the emergence over the past 7 or so years of a dynamic Fintech sector. With the introduction of PSD2, the promotion and adoption of open banking we have seen significant investments in R&D and innovation. These have benefits to both UK consumers, businesses and the wider economy as a whole. With the ever evolving technology landscape it is great to see the changes in R&D tax credits, supporting and encouraging UK innovators.’

Draft legislation will be published in the summer this year, with final legislation included in the Finance Bill 2022-2023. Changes will take effect from April 2023.