A CBI report this week revealed an under investment in research and development within the UK. The current spend is 1.7% of GDP (stuck at the same level as 15 years ago), compared with an average of 2% in the EU, China 3.1% and South Korea 4.3%. Part of the reason for this is that most people associate it with science or technical projects, but it also can apply to software if it classifies as “innovation”.
Many business owners sit on legacy software that has long passed it’s used by date and believe it is too expensive and risky to move forward. That’s because it is. By it’s very nature, software is complex with thousands of strands of code with even one error, could produce unexpected results. Even when implemented, staff may not use it properly, or it may never quite capture the nuances of business in the real world. Yet if they sit on their hands legacy software can hold a business back, either by not being supported, becoming inefficient, slow processing of information or just no longer relevant to the current business model. If a business does not move forward with their technology then competitors are likely to steal the advantage and they lose market share. Plumbers who use text messaging to notify their customers when they are going to arrive are more likely to get repeat business that those who do not.
Because there are such barriers to invest in improvements, the government have boosted the RnD tax credit scheme which allows a business to mitigate the risk of moving forward with a “cashback” incentive. Projects must have an element of “uncertainty” and “add to area of knowledge not already easily understood” to classify. The application is handled at the same time as a companies tax return. It includes not only developers costs, but a proportion of staff time, overheads and equipment. This means that the costs that are normal expenses against a companies profit to reduce corporation tax can also be used to “double dip” and claim that amount back as a cash refund. This allows for a business to take the risk as a proportion of the cost already covered.
Not many accountants are fully aware of the scope of this scheme so it is worthwhile raising it with them and then seeing if your company can utilise this facility to invest in future improvements. If you need further advice please contact us or see our FAQ page. To measure the benefits of different software options our downloads section has a “vendor software comparison chart” to help business owners visualise what functions they can get for the price.