If your company trains models in the cloud, licenses datasets, or hosts development work on remote infrastructure, you're probably paying for something central to your R&D. Cloud computing and data licence costs have only qualified for R&D tax credits since April 2023, but some businesses still aren't claiming them, either because they didn't know the rules changed or because they're unsure what actually counts.
Here's what qualifies, what doesn't, and how to handle costs that are split between R&D and everything else.
Can you include data license or cloud computing costs?
Data licences and cloud computing services are eligible since 2023 as their own qualifying cost category. The change applies to expenditure incurred in accounting periods beginning on or after 1 April 2023, and it carries through into the merged R&D scheme that replaced the old SME and RDEC regimes.
Before April 2023, R&D tax relief only covered a narrow set of cost categories: staff costs, subcontractors, consumables, and software. Cloud computing and data licences weren't included before the change, which was an increasingly odd gap given how much modern R&D, particularly anything involving AI or machine learning, depends on rented infrastructure rather than owned kit.
What counts as a data licence or a cloud computing service?
The legislation is specific about both terms, which is useful because it removes the guesswork.
A data licence is a licence to access and use a collection of digital data. That covers things like training data for a machine learning model, reference datasets you license from a third party, or subscription access to a specialist data source your R&D depends on.
Cloud computing services cover the provision of access to, and maintenance of, remote data storage and hardware facilities, and remote operating systems and software platforms. In practice, that's your cloud compute hours, storage attributable to R&D workloads, and the platforms your development environment runs on.
When do these costs actually qualify?
The same test applies here as everywhere else in an R&D claim: the expenditure has to be incurred in carrying out R&D that's directly resolving a scientific or technological uncertainty. If your cloud spend or data licence is genuinely part of that work, it qualifies. If it's supporting the business more generally, it doesn't.
For example:
A machine learning startup with 12 staff spends £45,000 a year on cloud compute to train and test a new model architecture, and £15,000 on a licence for a proprietary dataset used to train it.
Both costs directly support work aimed at proving whether the new architecture can hit a target accuracy that no existing approach has reached. Both are included in the claim in full. At the merged scheme's 20% credit rate, that's an additional £12,000 credited before tax, on top of whatever the company's staff and software costs already contribute.
What doesn't qualify
There are two specific exclusions written into the legislation, plus one general one worth knowing about.
- Costs where you get a right to sell the data. If, as part of the licence or service, you gain the right to sell the data itself, that expenditure isn't treated as R&D spend.
- Costs where you get a right to share the data with a third party. The same applies if you gain the right to publish, share, or otherwise communicate the data to someone outside your company, beyond what's reasonably necessary for the R&D itself.
- Costs attributable to indirect activities. As with staff and software costs, spend that supports R&D indirectly (management, administration, and similar) rather than sitting inside the direct R&D work doesn't qualify.
There's also a practical exclusion worth flagging: this relief covers what you pay for cloud computing and data as a service. If your company builds its own server infrastructure instead of buying it in, that spend is capital in nature and sits outside this cost category entirely.
Splitting cloud costs between R&D and everything else
Most businesses don't run cloud infrastructure exclusively for R&D. Where the same cloud environment supports both R&D and non-R&D activity, you're expected to apportion the cost on a reasonable basis rather than claim the whole thing or none of it.
For example:
A SaaS company pays £30,000 a year for cloud hosting, split between its staging environment, where new features are built and tested against genuine technical uncertainty, and its live production environment, which serves existing customers.
Based on logged compute hours, 40% of usage relates to the staging environment. £12,000 of the annual hosting cost goes into the R&D claim; the remaining £18,000, tied to production traffic, doesn't.
Keep a record of how you arrived at the split, whether that's compute hours, storage volume, or another measure tied to actual usage. HMRC expects a just and reasonable basis, not a rough estimate applied after the fact.
Does this apply under the merged scheme too?
Yes. The same cost category carries through into the merged R&D scheme and the Enhanced R&D Intensive Support scheme for loss-making SMEs (ERIS). Whichever scheme your company claims under, cloud computing and data licence costs sit alongside your staff, software, and consumable costs as one more category to pull together when you're building your claim.
Key takeaways
- Cloud computing and data licence costs have qualified since April 2023, for accounting periods beginning on or after that date, and the category carries through into the merged scheme.
- A data licence covers access to a collection of digital data; cloud computing services cover remote storage, hardware, and software platforms. Both need to be directly tied to resolving genuine technical uncertainty.
- You can't claim costs where you gain the right to sell or share the underlying data with a third party beyond what the R&D itself requires.
- Mixed-use cloud costs need to be apportioned on a reasonable, evidenced basis between R&D and non-R&D use.
If you're not sure whether your cloud or data costs belong in your claim, get in touch with the Tax Cloud team and we'll walk through what qualifies for your business.
