The Coalition for a Digital Economy (COADEC) recently reported on their research into the UK’s Research and Development Tax relief system with a focus on start-ups. Their summary presents seven recommendations to improve our current procedures, which we are focusing on here.
Our last blog article contains information about COADEC’s research, including: international comparisons using statistics from trusted sources and the disconnect between some R&D rules and their application to real life business innovation. The seven improvements are listed at the end, to be expanded on here.
This is the title of the first block of three recommendations based on COADEC’s research. These are three things that many companies see as being crucial elements to their research and development, but are not currently recognised by HMRC as allowable costs within an R&D claim.
Do you incur any of these costs as part of your innovation?
- Data Sets: Buying data sets is a vital part of development projects for tech start ups. But it is not on HMRC’s list of eligible costs and cannot become part of an R&D claim.
- Cloud Services: Another essential that is not universally accepted as part of an R&D claim. Any innovation involving thorough, large scale tech work – like sensors or algorithms – needs access to the cloud.
- UI/UX development: Any new tech product must be rigorously tested with its potential users at the front end. Over 80% of the participants in COADEC’s research have UI/UX work embedded in their R&D strategy. It’s crucial. And often requires innovation to fit their final aim.
The argument behind these proposals is that HMRC need to keep up to date with what innovation actually looks like for businesses. It would be hugely beneficial if these three costs were included in the R&D tax relief ‘eligible costs’ list, particularly for start-ups.
The final four recommendations based on these research findings revolve around the actual R&D tax relief claiming system itself.
- Clarity: It would be beneficial to all if it was absolutely clear what is acceptable to include on R&D Tax Relief applications. This includes giving specific feedback on questioned or refused claims.
- Industry experts at HMRC: The technology industry moves at a mind blowing pace and HMRC need professionals with their finger on the pulse. If they did, they may have implemented the first three improvements already.
- Regulation of the R&D tax credit claims industry: Establish a self-regulatory body to ensure a consistently high standard is maintained by all R&D tax relief experts. Qualified real professionals will be endorsed and scam artists will be exposed. This protects consumers and promotes the good reputation of this niche area of accountancy.
- Promotion: Advertise the R&D tax credit scheme far and wide. Too many companies miss out because they don’t know it exists. It’s an amazing scheme the government should be shouting about.
What do you think?
These all seem like sensible suggestions that are based on reliable evidence. Even if no new eligible costs are adopted as a result, simply clarifying things as they stand will help everyone to present an R&D tax credit application more confidently. The seventh point about actively promoting the scheme has been previously identified as a critical way to increase uptake, boost innovation and strengthen our economy as a whole. Are there any other points that you would consider?
Given that this tax relief is targeted at those working at the cutting edge of science and technology, it is logical that HMRC have the capacity to review their regulations frequently. This research reveals the discrepancy between current R&D tax relief rules and the reality of new development costs. Without investment in expertise, it is difficult to see how this will be rectified. It would be a shame to see such a fabulous tax relief remain under-utilised and work at less than its full capacity.