According to figures produced by the Office for National Statistics, the UK’s annual spend on Research & Development (R&D) increased to £34.8 billion in 2017 (the latest year for which figures have been released), representing 1.7% of GDP. Of that total, the business sector’s R&D spend was £23.7 billion.
This is across the whole of UK industry. Pharma and automotive fill, unsurprisingly, the top two sector spots, but coming in a close third is the spend on computer programming, IT and software development - a whopping £3.3 billion, or nearly 15% of the business community’s investment in R&D.
This should not come as a surprise. Programming has come a long way since the work of pioneering mathematician Ada Lovelace and computer scientist John Backus. Visual Basic, C and Java have already had to be replaced by Go and Swift to cope with the large and versatile IT systems and devices we use today. If you ascribe to Gordon E. Moore’s law, then you would expect development to continue at an alarming pace. So why does this matter? The cost of buying, maintaining and improving IT platforms is becoming increasingly more expensive, because of the reliance placed on the systems. Whilst this can put increased pressure on working capital, there is a strong possibility we can help to reduce the cost burden.
How can R&D Tax Relief help?
The availability of R&D Tax Relief is being actively encouraged by UK Government in order to incentivise UK companies that are seeking to innovate by attempting to advance technology or science. Indeed, the Government’s target is to increase levels of spending on R&D to 2.4% of GDP by 2027 which is a significant increase from current levels.
For loss-making companies, relief can be in the form of a payable cash amount from HMRC of up to 33p in every £1 spent on qualifying R&D project. For profit-making companies, investment in R&D can receive tax relief up to 44%, taking into account the actual amount spent and the additional deduction available under the R&D regime.
These are truly game-changing amounts and means that R&D should be looked upon as a genuine source of fundraising and cashflow support, alongside debt, equity investment and grants. It is far more than a tax relief.
What activities may qualify?
The grandiose definition of R&D is set-out by the Department for Business, Innovation and Skill. It talks of the physical and material universe. This is probably not helpful wording when trying to encourage genuine IT and programming innovation from obtaining the tax relief the Government wants to hand out.
The fundamental test, though, is whether IT and software work is seeking to achieve an advance in the field of science or technology – not just an advance in the company’s own knowledge or capability. Even this seems like a high barrier, but the type of projects which could qualify for R&D tax relief include:
How can we help?
We have a proven track record of supporting our clients with IT and computer sector specific R&D claims. We would welcome the opportunity to discuss innovation and investment in your business and can help you assess the potential benefits which might be available to you under the R&D Tax Credit regime. For a free and confidential discussion, contact Talk to our R&D team today.