Programme Your R&D

According to figures from HM Revenue & Customs (HMRC), the estimated total number of Research & Development (R&D) tax credit claims for the year ending March 2020 was 85,900, an increase of 16% from the previous year.

The increase is primarily driven by a 16% rise in the number of SME R&D claims to 76,225.

HMRC estimates the total amount of R&D tax relief support claimed for the year ending March 2020 as £7.4 billion, an increase of 19% from the previous year. This corresponds to £47.5 billion of R&D expenditure, 15% higher than the previous year.

Not surprisingly, the statistics reveal a concentration of claims by companies with registered offices in London (20% of total claims and 31% of total amount claimed), and the South East (15% of total claims and 18% of total amount claimed). It will not be the case in all instances that the registered office location is where the R&D activity takes place.

The greatest volume of claims comes from the Information and Communication, Manufacturing, and Professional, Scientific and Technical sectors making up 64% of claims and 69% of the total amount claimed for the year ending March 2020.

This should not come as a surprise. Software 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 14.5% of the surrenderable loss.

Profit-making companies can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction

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:

• Robotic process automation
• Development in AR or AI
• Customisation of existing software
• Collaboration on ‘off-the-shelf’ systems 
• Geoinformatics
• Data architecture development
• Implementation of a novel algorithm 
• Cyber security 

How can we help?

We support 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.