Diagnostax. R&D software expenses

Diagnostax Blog 5: R&D and Software Expenses

R&D What software expenses can I claim for?

Almost every R&D Tax Relief claim that we process includes some form of software costs. But it’s hardly surprising, as every business today has software costs. We use software in just about every business process we do! It’s also the one R&D cost that most businesses feel comfortable with, when they come to make their R&D claim.

But what you might not know, is that there is one big grey area, meaning certain software costs cannot be claimed.

Let’s find out the fundamental rules when it comes to software costs, and what exactly this mysterious grey area is.

R&D software expenses

SOFTWARE COSTS: THE FUNDAMENTAL RULES

The rules around software costs would appear to be straightforward:

  • If the software has been purchased only to be used in an R&D project, then you can include 100% of the cost in the R&D tax claim.
  • If you use the software for other business activities that sit outside of the R&D project, then you need to calculate an appropriate proportion of the software’s cost to be included in your claim.

Simples, right?

Diagnostax. R&D software costs

SOFTWARE COSTS: THE GREY AREA  

With software, there are often ‘other costs’, that are incurred alongside the software when it is leased from external parties. It’s these costs where the grey areas start to creep in. These costs fall under the banner of ‘cloud computing’ and charges could be for a whole range of activities, including use of software, storage rental, and support.

Diagnostax. CLOUD COMPUTING & HOSTING

CLOUD COMPUTING & HOSTING

Cloud computing and hosting is particularly relevant for businesses that are involved in R&D projects related to the development of software. It’s these ‘cloud computing’ costs that unfortunately do not meet the requirements of any of the qualifying criteria to make an R&D claim. It’s quite common for businesses to purchase packages which are used to support activity across their business operations as well as R&D activity. Therefore, it’s key to track the costs dedicated specifically to hosting the testing and development environment, when using the services.  The likelihood is you’ll be using software somewhere in your business, and it could impact your R&D claim. Like a lot of R&D categories, software has its grey areas, but that’s what we are here for, we will work with you to ensure you submit an accurate R&D claim.

As we speak new changes are on the horizon to include cloud computing and data costs, but stick with us and we’ll make sure you’re up-to-date as the changes come in.

THINK YOU MIGHT BE ELIGIBLE TO CLAIM?


If you think you might be eligible for R&D Tax Relief, and you’d like to find out more about how we can help you make your R&D claim , please book a call

Secret R&D

Diagnostax Blog 12: Secret R&D

Are you sat on secret R&D?

Even though you already claim R&D Tax Credits, there’s every possibility your company could be sat on ‘secret’ R&D. But what do we mean by ‘secret’ R&D? Well, we often come across clients that have developed or built a product, process or service specifically for themselves without recognising that what they are doing is research and development. They are so focused on just ‘doing’ the work they do, they don’t recognise the steps they are taking. It’s only when you start thinking in a certain way that you begin to recognise that you are sat on products, service and processes that you could claim R&D Tax Relief for.

With that in mind, we want to share some examples, to give you an idea of the types of activity and situations in which secret R&D occurs.

ARE YOU SAT ON SECRET R&D?

Secret R&D can manifest in many different ways, through things like:

  • Investing in technology and bespoke integration to improve efficiency
  • Developing specialist software to resolve inefficiencies in business processes
  • Developing new products to improve service delivery
  • Developing an existing service to improve customer experience
  • Developing new systems to improve business processes

Here’s five real life examples of businesses that had been sat on secret R&D..

Are you sat on secret R&D?

Business: SAAS Technology solutions
Secret R&D:
Business as Usual
R&D Tax Refund:
£7.5K

Working with clients to deliver bespoke technology business solutions for a wide range of industries and business scenarios, this company delivers R&D qualifying projects pretty much every day. The business was so involved in the day-to-day, they didn’t recognise that they were delivering research and development, daily. The company had also invested significant resource into the development of their own technology solution, just seeing it as an internal project needed to improve their efficiency.

Working with a client they recently developed one of the UK’s most advanced smart metering platforms leading to just over £7.5K of R&D tax credits.

Business: E-commerce
Secret R&D:
Resolving Inefficiency
R&D Tax Refund:
£6K

Anecommerce business specialising in sports accessories, developed a specialist shipping integration software to improve inefficiencies in their business processes.Working with a subcontractor, they modified a program to make it more efficient for use within their business. Significant improvements were made to the software program to integrate the software into their systems, and the internal R&D project generated a claim worth £6k over a two year period.

Although the business set out to resolve inefficiencies in their business process, they were too involved in the project to recognise their own work to be innovative.

Business: Scaffolding contractors
Secret R&D:
Save Time & Money
R&D Tax Refund:
£22K
These guys are experts in scaffolding, specialising in the provision of scaffolding installations to a wide range of industries.They had invested in the development of a free-standing scaffolding structure to be used for internal scaffolding, primarily to save their time and cost when setting up jobs.

The company was clueless that what they had set out to do was an R&D project. They just wanted to save themselves time and money! However, in the process they developed a new innovative scaffolding product applicable industry wide and acquired a corporation tax repayment of over £22K for a two year period.

Business: Gastropub & Hotel
Secret R&D: Improve customer experience
R&D Tax Refund: £7K

A Gastropub and Hotel based in the North of England, wanted to provide a menu that catered for all tastes and needs, as they wanted everyone to find something really good on the menu. They knew it didn’t make economic sense to have a dozen different menus, so they worked on a new menu to cater for all dietary requirements.

The gastropub developed an innovative menu that could be produced to cater for vegan and gluten free diets, without compromising on the customer experience.

The owner was convinced there wouldn’t be a claim because it’s just ‘what they do’ but when he reflected on all the hard work that goes into crafting their menus he was able to see the numerous research and development steps in their work.

This work realised an R&D Tax claim of £7k for the gastropub.

Business: Fashion & Apparel
Secret R&D: Sales toolR&D
Tax Refund: £15K

A women’s clothing manufacturer and retailer, developed a unique sports clothing range for pregnant women which they understood would qualify for an R&D claim. However, alongside this they delivered a complex website project which included the development of a global directory of maternity fitness instructors. Developed as a sales tool, the business was completely unaware that they had built something completely new and innovative.

Altogether the R&D projects equalled a total benefit of just over £15K.

Ensuring you identify all the R&D in your business requires a mindset change, and cultural shift to make it work business wide. You have to change the way you think about what you are doing day-to-day. Encourage your employees to constantly challenge the way they – and others – do things, to make suggestions for improvements and bring forward new ideas.

You could be sat on secret R&D gold.


THINK YOU MIGHT BE ELIGIBLE TO CLAIM?

If you think you might be eligible for R&D Tax Relief, and you’d like to find out more about how we can help you make your R&D claim, please book a call.

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