IT Support- how IT companies innovate using R&D Tax credits

How R&D tax credits and innovation grants help IT support companies innovate


Innovation is one of the strongest drivers of economic growth in the developed world, so business leaders need to pay utmost attention to new technologies, products and services within their sector to ensure continued profitability and optimised service levels. This is particularly important for IT companies providing IT support and tailored technology solutions to different businesses.

One of the major benefits of innovation is that it assists in leading to higher levels of productivity within the workplace. This in turn leads to growth of underlying economies and the creation of new markets. Innovation is not just about a major breakthrough or technological advance, even the smallest changes can lead to the development of new markets and gains in productivity.

Within the IT consultancy field, it’s often the case that business clients require tailored software solutions to meet their requirements exactly. This is particularly so in some of the major city hubs, like London, where the competitive pressures are fierce and there are an abundance of specialist sectors, like fashion, retail, finance and insurance. IT consultancy work of this nature is highly likely to fall within the remit of R&D tax credit or innovation grant eligibility, so it’s important IT consultancies don’t miss out on opportunities to claim back some proportion of the R&D expenditure incurred. Ultimately, cash injections of this nature can help grow the business and ensure the best talent is recruited to teams.

About R&D tax credits and innovation grants

R&D tax credits are available to a variety of businesses working on innovative projects in the fields of science or technology, even unsuccessful projects can be claimed for. Schemes like the R&D grants for SMEs  allow for up to 230% in deductions from business taxable income for all eligible R&D expenditure. After applying corporation tax rates, this gives cost reductions of 26%. Where businesses are loss-making, it’s possible to carry these losses forward for offsetting against future liabilities for tax, or surrendering losses in return for payable tax credits at a rate of 14.5%, which effectively provides 33.35% of the cash spent on R&D.

R&D European grants are also available until the year 2020 via the Horizon 2020 programme , which can provide up to 100% funding for eligible activities. There are also further funding programmes in place for innovation and R&D within the EU.

F.Initiatives  offer expert advice and support on R&D tax credits and other funding programmes to SMEs and larger corporations. Their professional teams of R&D tax credit consultants specialise within this field and have the breadth of knowledge required to optimise and drive forward complex applications for funding innovations, both within the UK and globally.

Innovation Grants are also available through the UK government’s Innovate UK schemes. These schemes can provide qualifying organisations with funding between £25,000 and £10mn and applications are made by way of grant funding competitions which run on a regular basis. Additional innovation loan funding is also available up to a total of £1mn. Any type of UK-based business can apply for innovation grants, from startups to large corporations, with different competitions offering varying criteria and eligibility requirements.

How this funding can help IT consultancy companies grow and innovate

IT consultancies, particularly businesses providing IT support in London, can benefit in a number of ways from funding via R&D tax credits or innovation grants. The field of IT and technology is constantly evolving, with new software and products being launched at all times, particularly in the central London hub of business activities. This makes it critical for IT consultancies based in London to adopt an agile, forward-thinking perspective in order to maintain their abilities to provide required client services.

Most IT and tech companies qualify for R&D tax credits and/or innovation grants, as their daily operations require taking risks by working on the improvement, innovation or development of products, processes or services. Improvements to IT services is the arena in which IT support and consultancy services would qualify for this form of funding.

The type of IT business activities that would qualify for R&D tax credit funding include:

– the defining of technical objectives and identification of uncertainties
– feasibility studies and the review of new technologies
– the analysis, design and development of new technologies
– the production of technical specifications and other documents in support of any R&D project and the testing of the product, software or process
– the planning and management of projects
– certain indirect support activities relating to these R&D initiatives, such as finance, personnel services, training and administration

Not all research and development costs qualify for tax credits, so it’s important for eligible businesses to maintain robust financial records. In the case of UK innovation grants, companies applying for individual competitions will need to check the eligibility requirements, prior to making any application.

The sorts of costs that can be included within R&D tax credit claims include:

– staff costs, including gross salary and employer NI and pension contributions
– agency workers or any workers from external sources and sub-contractors or freelance workers
– costs for software licences
– consumables, such as materials or equipment that’s either used or transformed by the R&D processes undertaken

Benefits of R&D tax credits

Any profit-making SME will find that R&D tax relief will cut the amount of corporation tax on profits made throughout qualifying periods, this is by way of the enhanced deduction. As already stated, this cut to corporation tax gives an overall benefit of 26% on all R&D expenditure. In circumstances where any R&D deduction would be larger than profits made during the period, a loss will be created for purposes of corporation tax. This loss can either be carried back to a previous accounting period in which taxable profits were made, or carried forward to offset against future profits of the business. Alternatively, the loss can be surrendered partially or fully in return for cash payments of R&D tax credits from HMRC.

As seen here, both R&D tax credits and innovation grants can be valuable ways to help IT support companies provide the innovative solutions required by business clients. Utilising this kind of funding helps any IT consultancy recruit and retain the talent needed in this competitive field, alongside contributing to ongoing administrative costs. The technological changes occurring within IT make it particularly important for IT consultancies to offer solutions specifically tailored to clients’ business needs. And, effective IT infrastructure impacts on just about every arena within modern trading companies.

Any IT support business working in this day and age needs to take utmost advantage of available funding initiatives in order to grow the business and continue the provision of reliable, secure IT systems to clients. Ensuring IT consultancy services remain competitive and innovative means staying on page with all developments in this fast-moving field. It can also be critical to have the ability to access specialist employees or freelancers with the knowledge required by high level business clients. That’s the reason partnering with F.Initiatives to explore all aspects of available R&D tax credit funding and innovation grants can really provide the impetus and dynamism needed to grow the consultancy to the next level.