This client recycles used laboratory equipment in collaboration with scientific institutions across the UK. Their industry-leading business model is based on profit-sharing and provides benefits to their customers and the environment. They pick up used laboratory equipment, refurbish it, and sell it second hand, whilst sharing any profit they make with the institutions where the equipment originated. Their Software R&D project allowed them to create a technology environment where their business model could thrive.
This business model is enabled by a unique and bespoke Enterprise Resource Planning (ERP) system which was built over the course of this two year R&D project.
The client used ERP Next as the basis of their software development. ERP Next is an open-source Enterprise Resource Planning software. Within ERP Next they designed, developed, and tested new modules. These new modules created new and bespoke functionality within the open-source software. They created an ERP system that allows their profit-sharing model to thrive. Other companies across the world now use these new modules in ERP Next to their advantage.
This innovative software R&D is precisely the type that the government is aiming to support through the R&D Tax Credit scheme. Because the software has been developed within ERP Next - it is part of the open-source economy. This means the technology is now available for use by other companies using a similar commercial structure.
Understanding the difference between developing a new programme using technology that was readily available, and development activity that qualifies as R&D can be difficult. HMRC have released specific guidance related to Software R&D, you can see it here.
The guidance states that activities that may qualify change as knowledge and capability in the programming sector grows. Having an industry expert is vital if you want to claim as much of your tax credit as possible, without risking punitive measures by HMRC. If you are considering making an R&D Tax Credit claim for software development, Zest can help with specialist advice.
When making an R&D tax credit claim – Zest will always endeavour to maximise our clients' returns. One of the ways we can do this is by carrying any trading losses accrued thanks to R&D related expenditure forward to the next accounting period. This can provide clients with a better return by reducing their Corporation Tax liability in consecutive years.
In this instance, when the claim was submitted, we amended the previous years’ tax return to carry the R&D enhanced expenditure forward as a trading loss. This meant the total value of the tax credit was increased by over £1500 – as the expenditure was offset against a trading profit in the most recent accounting period.
Creating and approving this claim took about 2 weeks in total, and once the claim was submitted to HMRC, it took under a month to be approved. This is fairly typical for a software R&D tax credit claim of this type.
The expenditure over the 2 claim periods totalled over £71,000. That meant the client received a reduction in corporation tax this year which totalled over £18,000. All-in-all a great result, and an example of how a well-managed Software R&D tax credit claim can be quick, painless, and effective when conducted by Zest R&D.
If you want more information, or to discuss a potential claim - get in touch.
Find out how how companies can meet the deadlines for R&D tax credit claims and all the key R&D tax relief changes coming into place in 2023.
Costs involved in R&D are tax deductible and there are two ways in which R&D costs can reduce a companies Corporation Tax liability. Firstly – with the usual deduction of 100% of the cost from your companies profits. In addition, the R&D Tax Credit scheme allows a further deduction of 130% of eligible R&D costs, […]
Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax relief regime, including a cut to the deduction and credit rates for the SME scheme, the R&D tax credit. The rate of the large company scheme, the R&D expenditure credit (RDEC) will be increased from 13% to 20%, […]