Trends and Innovations for 2018
The relief an SME can get for their research and development has increased to 230% on their qualifying R&D costs. For the RDEC scheme, a taxable credit is available at 11% of qualifying R&D expenditure.
Research conducted by HMRC has also highlighted a steady increase in the number of claims made for R&D tax credits, and since its launch in the 2000-2001 financial year until the end of 2012-2013, more than £9.5 billion had been claimed in payable credits and tax relief. The possible costs that R&D tax credits can be claimed against in software development include staff, materials, software, and even contractors or external workers.
Development teams in companies across the nation are often required to create new programming methods and approaches to meet a project’s specifications. These unique and new methods to solve the project’s technical uncertainties can be classified as the start of R&D. Rather than focusing on the finished application’s functionality and features, it’s important to consider where technological advancement has happened during the development stage, as a pair of identical applications can function more or less the same while having vastly differing architectures behind them. One might qualify for software tax credits while the other might not.
Another thing to remember when making an application for R&D tax credits in software development is that they must be carefully considered if research grants have also been obtained. If you’ve applied for, or are to receive, grant funding for your R&D, then it’s important to understand its impact on your claim and perhaps seek expert advice. The type of grant you’ve applied for and the way that the agreement is worded could potentially reduce the value of your R&D tax credit software development claim.
It’s a common misconception that claiming software development R&D tax relief completely nullifies the use of all grants. If you’re grant funded then you should definitely consider claiming HMRC R&D tax credits for the software development that you’ve carried out, and they can help you to grow without serving to dilute your equity.
This industry guide will highlight areas of IT and software development which will often qualify for R&D relief. If you’re aware of projects that your company has undertaken in the last few years which fall under the areas specified in the following guide, and you have the paper trail to prove it, then you could be eligible for R&D tax credits.
2. Software Development Innovations in 2018
Software development is a fascinating and profoundly important process in the world today. The software that we use in our daily lives controls the way that we book flights, how we shop, and much more. The advancement in software and technology development triggers changes in the way that our world operates and can help people live their day to day life more comfortably.
Whether software development forms the very core of your company, or is something that you’ve invested in to improve on services or a process, the sector has untold ways of claiming R&D tax credits for software development. It’s not always straightforward understanding what qualifies as research and development and the complexity of some projects can make it difficult to file an optimal claim.
3. Software and IT developments – the conditions for R&D tax relief
There are two ways in which the expenditure on the creation of software can be considered for R&D credits. The first is that the software has to be used as a tool in a larger research and development project. For example, if software is developed as a tool for use directly within a large R&D project, then the development of this particular software will qualify.
The second is the development of software as the goal of the overall R&D project. However, the project must seek to achieve an advance in technology or science, and there must be an advance in the overall knowledge in a science or technology field also. Remember, routine adaptation of an existing process or product is not considered R&D – you must be seeking to resolve scientific and technological uncertainties.
Most software and IT projects will be undertaken with the intention of creating a product that can be sold, licensed or used in house.
Software projects that are likely to be R&D include:
- Developing new operating systems
- Resolving issues with software or hardware, where the solution to a current problem is unknown
- Creating new security or encryption techniques that do not follow already established methods
- Developing more efficient or new algorithms whose improvements depend on techniques that have been previously untried.
- Modifying or developing tools to assist with workflow
- Addressing issues that impact the security of your service
- Creating new security features to guarantee the data of your customers is protected.
With this in mind, let’s take a look at the different sectors and top areas of innovation where R&D could be applicable.
3.1 Data Science & Analytics
The amount of information stored by companies is growing rapidly. While companies look at sophisticated methods to analyse data in real time and provide actionable insights, data science and advanced algorithms are enabling businesses to design predictive systems which enhance their operation’s efficiency. Applications are being created to solve the complicated problems across various industries involving advanced analytics and how to make the most of big data.
3.2 Cloud Based Service Providers
Cloud computing carries manifold benefits and allows for convenient and on-demand network access to shared pools of configurable computer networks, applications, servers, storage, etc. They can be speedily provisioned and then released with very little management or even service provider contact.
A great advantage of cloud computing is that it promises an always-on model of computing which is constantly ready for delivery. A large range of services have derived and branched from it, and have become a part of our day to day lives as they have facilitated and assisted in many routine functions. Businesses and governments have also seen widespread improvements and benefits as a result of using cloud computing services. The UKITA, a trade association, is a great resource for smaller tech, digital and IT businesses, and has a wealth of knowledge on cloud computing.
Software-as-a-Service lets a cloud service provider offer the use of various applications over the internet. It refrains from restricting applications to a single platform and SaaS providers often strive to make their experience the same, irrespective of the specific device that the application is used from. Google Docs, Salesforce, and Evernote are good examples of successful SaaS providers.
Database-as-a-Service, a component of Platform-as-a-Service, is the fastest-growing cloud service and can offer huge improvements in performance, productivity, standardisation, as well as in data security. DBaaS specifically denotes software which enables users to manage, consume, provision, configure, and operate database software without having to specify the precise implementation for the specified database software.
Platform-as-a-Service is a type of cloud computing which gives developers a platform to build services and applications over the internet. PaaS services are hosted and kept on the cloud and can then be easily accessed by users through their internet browser. Software developers can particularly take advantage of a PaaS solution in order to create applications to launch and offer over the internet.
4. Internet of Things (IoT) Applications
The Internet of Things dramatically alters the world that we live in. It changes how we make payments, how we drive, how we shop, and has improved various elements of our daily lives. It helps to make things more simple, efficient, and cost-effective through the increasing control it gives and by monitoring our applications and devices. These developments often carry with them a high risk and some uncertainty, but with the potential for being commercially successful and providing manifold benefits and rewards.
IoT applications are powered by smart devices, equipment, and sensors which connect to one another in the network. Retail solutions are found from many of these applications. Tracking goods, smart solutions, smart metering systems, etc. could all be considered as forms of viable claims for R&D tax credit for internally developed software, and all are made using IoT. These sort of applications are immensely useful when it comes to supply chain management and asset tracking – they are often equipped with predictive automation as well as business intelligence for the close tracking of vital events.
The rapid pace of technological growth has made the typically change-resistant financial services more open to embracing what technology has to offer. The drastic and lasting improvements on efficiency drives up profits all the while serving to enrich the customer’s experience. But disruptive tech – such as Bitcoin or crowdfunding platforms – have shaken up the way that traditional systems operate and created a new centre of innovation in finance. FinTech has become a sort of catch-all for describing technological innovation in the finance sector.
There are a wide range of applications and themes that give companies potential to qualify for R&D tax rebates. Developing new or improved services, processes, or products with some risk in the outcome can make a business eligible to become the beneficiary of significant government support.
Blockchain is the platform that Bitcoin operates on; it records a bitcoin’s complete transaction history which is recorded permanently, showing where it originated and what transactions came before and after – thus creating an honest and open method of transacting online. This invisible online ledger is a form of record-keeping that can be accessed by anyone and controlled by no one.
In everyday life, our transactions are approved by middlemen, such as banks and governments. Blockchain is removed from this, however, and is instead hosted by computers around the world and as such isn’t under the control of any one body. Each node in Blockchain’s network owns a full copy of each and every single transaction on the blockchain, which means that all transactions are transparent with all history and details clearly defined.
Though Blockchain has historically been used for financial transactions, its reliability and security has seen it applied to other fields. Blockchain offers an increase in security, far reduced costs, and much quicker transactions which means it has caught the attention of the pharmaceutical and healthcare industries, as an effective solution for storing private patient data efficiently and securely.
At R&D Tax Solutions we specialise in helping businesses to claim research and development tax credits offered by the UK government. Companies have been provided with a software development R&D tax incentive in order to carry out valuable R&D to master technological uncertainties and to recuperate costs. Companies can see roughly how much they might be entitled to by using our r&d tax credits calculator.
If your business uses blockchain in pioneering and novel ways then get in contact with us today and let our experienced team determine if you’re eligible to receive the research and development tax credit for software companies that is supplementing the innovation budgets of businesses across the UK. You could be able to claim back up to 33% of everything invested in R&D, which can be of immense value to SMEs, thus enabling further growth and expansion. If you’re already claiming R&D for software development, then our expertise might be able to assist in uncovering more activity that would possibly increase the value of your overall claim.