Calling SAM for tax relief credits

Jelle Wijndelts says there are wider benefits to managing software assets correctly

Why aren't resellers helping clients get corporation tax relief with data gleaned from software asset management (SAM) software?

Take That's Gary Barlow isn't alone in feeling the burden of taxation, and he is reportedly now paying all his dues.

However, in my opinion the government clearly empathises with him and others like him, having already reduced UK corporation tax rates to among the lowest in Europe.

A further opportunity for firms to reduce or potentially even eliminate corporation tax exists, in providing evidence to support successful tax relief claims through the government's R&D tax credits scheme.

Through account management programmes, resellers could be playing a more active role in enabling this, helping the end-user company make the connection between the amount of corporation tax they pay, any qualifying R&D-type activities and SAM data.

Companies of any size may be eligible for R&D tax credits. They enable up to 225 per cent tax relief to be claimed against the costs of an R&D investment.

This means for every £100 incurred by a qualifying project, the company may reduce its taxable profit by £125 in addition to the £100 already claimed in the company's profit and loss account as a tax-deductible expense.

This can be offset against the cost of hardware, software and human resources.

Once eligible for these credits, the company may receive either a lump sum or future corporation tax rebate. Most claims generate a rebate of £100,000, but for some companies the saving can run into millions of pounds over several financial years.

Legislation introduced in 2013 for larger firms also allows R&D tax credits awarded to be reported above the line, and therefore highlighted in the same way as a grant.

This means they are visible to R&D budget holders, published in company reports, and can be offset against operating expenses for cash credit.

Unfortunately, this scheme has suffered from the perception that "R&D means some form of science-based development. That isn't the case; projects designed to improve organisational processes may also qualify – including investment in innovative technology.

This is classified within the development portion of the scheme, with relevant criteria including that the end product is a new or substantially improved service or results in improvements to existing processes or systems.

Although implementing a SAM platform would not qualify as a suitable investment, the data held in a SAM application may help a company provide the evidence required to qualify for a rebate.

These can be secured against employee costs – for example, the cost of employing staff to carry out R&D, or the purchase of consumable or transformable materials or computer software for R&D.

Consider a large petrochemicals company with a dedicated development department within its IT function and a remit to build specialist applications that sustain its business.

These activities would most likely qualify for R&D tax credits and if they have a SAM programme in place already, their existing SAM software can be used as a tracking and reporting tool to identify which activities might count as R&D – as well as quantifying the extent of involvement.

By configuring the data using auto-connect rules, identifying R&D-related areas in the company and combining this with the relevant software costs, it is possible to support a tax credit application.

Some of the biggest IT consulting firms have spotted the connection between SAM and R&D tax credits and are looking for ways to use this in business development.

This should be a cue for software resellers involved with SAM to follow suit and use the opportunity to up-sell advice and consultancy services.

R&D tax credits are a good business opportunity and the channel should be working with SAM customers to take full advantage of the scheme and get more value from their existing investment.

Judging by the level of support R&D tax credits continue to get from the government, it looks as if the initiative will continue for some time.

Jelle Wijndelts is senior SAM consultant at Snow Software