Andy Nixon, National IT lead in Grant Thornton's tax innovation team

Budget set to boost rapidly-growing cloud computing industry, according to R&D tax expert

One of the North West’s fastest-growing industries could be set to benefit from R&D tax changes in next week’s budget, according to the national IT lead of Spinningfields-based business adviser Grant Thornton’s tax innovation team.

The cloud computing industry is expanding at a rate of seven times that of the wider IT sector and this year is expected to be worth £9 billion to the UK economy. In Manchester, the industry is growing rapidly with Amazon Web Services moving to the city at the start of 2020, joining existing providers like ANS, iomart, and Cisco.

Trade organisation techUK reports that the adoption of cloud services, including software as a service (SaaS), has increased dramatically. In 2016, 36 per cent of businesses were accessing the technology, with that number now in excess of 42 per cent. The growth is driven by the overwhelming digital transformation disrupting multiple sectors and the increasing application of big data.

To date, however, interpretations of unhelpfully-vague eligibility criteria, driven by preconceptions and misunderstandings of the nuances of digital research and development, have prevented many businesses from claiming valuable rebates through HRMC’s R&D Tax Credit scheme.

R&D tax credits incentivise businesses to invest in the development of new products, services or processes, or to enhance existing ways of working. The guidelines relating to software projects were revised in October 2018. But the changes did not reflect the evolution in the way software and technology projects are developed, which has seen suites of dedicated hardware and software licences replaced by cloud computing.

The absence of clear, consistently-applied guidelines around the inclusion of cloud computing and big data investment for developmental purposes, is particularly affecting small and mid-sized companies, which are able to claim up to 33.35 per cent of eligible R&D spend back in a valuable cash credit.

That could be about to change, according to Andy Nixon National IT tax lead in business adviser Grant Thornton’s tax innovation team: “The Conservative manifesto pledged to ‘increase the R&D expenditure credit rate from 12 per cent to 13 per cent and review the inclusion of cloud computing and data within the scope of an R&D claim’.

“Should the Chancellor follow through on this pledge next week, we’re predicting an influx of improved or first time claims, particularly those in the entrepreneurial and mid-market space. For many of our clients, innovation now takes place in remote datacentres, far away from the office or laboratory. This is true in software and app development, but it increasingly affects other industries such as pharma and financial services, which are transforming their business models by harnessing big data.

“Businesses in all of these sectors would receive a boost by a revision to the eligibility criteria, while the larger corporates providing the infrastructure to enable this virtual R&D would also welcome the move.”

Grant Thornton’s north west tax innovation team operates from the firm’s Liverpool and Manchester offices, in addition to its base at the Sci-Tech Daresbury campus. In 2018, GT became the first advisory firm to open a permanent base office at the campus to service its growing science and tech-comprised client base.

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