Why aren't British software companies applying for tax refunds from the Government?

22-05-18
Why are British software businesses not applying for tax relief from the government? Is R & D tax relief too complicated? What development costs qualify for tax relief? Are R & D tax credits a minefield? Why are companies not applying for tax relief? What is the tax rebate on research and development spend? Is there a simple check list of qualifying research activities? Can independent accountants and business advisors help with R & D tax credits?

Many software companies in this country are missing out on a British government scheme to encourage research and development by offering tax relief on money spent in this way. That sounds simple enough but as with all things with red tape the reality can be somewhat more complicated. 

Read more articles in Funding News June 2018:
Big money continues to flow into UK based tech companies - four funding stories
R&D claims for software and emerging technologies - set for HMRC scrutiny
We’ve added a new video to our list of help videos on how to claim R&D tax credits

 What is R & D tax relief?

Whilst the applications for this tax relief have increased dramatically since inception, there are still many businesses that are not benefiting when they should be and this is particularly true of software businesses. This seems strange given that companies can obtain a corporation tax reduction of 26% on their research and development spend and indeed this can rise to 33% if the business is loss making, as for example many new technology starts up will be.

So why then are these companies not applying for this rebate?

There are many misconceptions amongst companies and their professional tax advisors as to what is a legitimate claim and this stops many of them. Unfortunately, in an area like this there is no simple check list of activities or investments that qualify. In very simplistic terms any investment or activity that is seeking to advance technology should qualify for extra tax relief and it is this type of activity that many software businesses are involved in every day. By definition software development is more often than not aimed at achieving or improving a technological capability and thus much of it should qualify.

What software development costs do qualify for relief?

A large part of the day to day costs involved in software development are eligible to set against tax.  This includes staff costs (including external or agency staff and subcontractor costs) and some software licensing costs.

Is the system too complicated?

The problem for most companies, particularly the smaller SME’s, is that there is no simple check list for them to use to find out what the government deems to be the definition of software R & D and they probably do not internally have the resource to research this properly. It is true that the government itself has a manual on what qualifies and there are even specialist units within government that are there to help. But companies can be overwhelmed by the complexity and lack of precision and thus the intention of looking into it stays on the back burner and never gets done.

The answer is to get help…

In the face of this complexity and apparent lack of transparency, most companies that do not have the internal resource to investigate their eligibility, are best served by getting help from some good independent accountants and business advisors who specialise in R & D tax credits. In this way they not only find their way through this minefield but they may also be able to claim a sizeable cash benefit from the Government.

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About the author

Linda Eziquiel

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Hi, I'm an R&D tax credit claims specialist, helping companies save thousands of pounds by reducing their corporation tax payments, or if they are loss making helping them get tax credit cash payments.

I'm proud to have:

  • Personally helped over 100 companies make successful R&D tax credit and relief claims.
  • With RandDTax (our company) - gained in excess of £75m for more than 920 companies since 2012.
  • Published an online course for accountants on Claiming R&D Tax Credits (see my publications).
  • Run dozens of CPD workshops for accountancy firms on Claiming R&D Tax Credits.
  • A 100% success rate across all my clients' R&D claims - covering a very wide range of industries.

  Find me at: http://www.cobizfunding.co.uk


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