‘RDTC - A game-changer for the IT industry’
David Butler has called for fellow- members of the WCIT to respond more actively to the Research and Development Tax Credit system (RDTC). Under the scheme, companies large and small have their burden of corporate taxation lightened if they can demonstrate that they are actively pursuing innovation, creative use of IT being included.
In the United Kingdom there are two RDTC schemes in operation, one for large companies and one for small. A small company is defined as having no more than 500 employees, a turnover not greater than €100m and a balance sheet not greater than €86m. Both schemes are operated by HMRC. The average big company claim is €375,000 while the average small company claim is €50,000. When a company claims for the first time, it’s also allowed to claim for two past years. So these are substantial sums of money.
In the year 2010/11 large companies made fewer than 2000 claims and small companies made just over 8000.
But what is meant by ‘research and development’ and how does a company know whether any of its activities would qualify for the RDTC? David Butler says people think of research as what goes on in pharmaceutical companies where new drugs are being developed, or in engineering plants where new alloys are being developed to make cars or aircraft. If a company does neither, it’s easy to conclude that the RDTC has no relevance. But this is far from being the truth.
The RDTC regulations identify all kinds of innovatory work that may qualify for a tax refund. In fact the rules actually indicate two areas which are of great interest to IT professionals. The rules point to systems integration and the improvement of business processes as qualifying areas of endeavour. Lots of IT activities have been the subject of successful claims. A senior manager from an IT firm recently described the RDTC as ‘a game changer for the IT industry.’
The invitation to claim is broad but there are also plenty of small print conditions. In fact the notes issued by the tax authority in Britain and the accompanying legislative materials amount to several hundred pages. So the people who compile a claim for your company have to know what they’re doing.
Why should a company bother to claim? One reason is that some of its competitors almost certainly are. If they are claiming, any company that fails to do so is making them a gift of a competitive advantage. And it’s a competitive advantage they don’t have to earn. It’s presented to them on a plate.
The simplest case to tackle is that of a company doing innovative IT work and failing to claim. Specialist advisers can help such companies make a claim, so there really is no excuse for failing to take advantage of the opportunity.
Many large companies that have a specialist taxation department are already claiming the RDTC. But even for them that’s not necessarily the end of the story. Such companies probably have a considerable number of smaller companies who supply them with goods and services. It is very likely that these suppliers might have a claim which they haven’t made. So the big company that purchases their products and services must orchestrate the claims of the suppliers, get them round a table and work out who can claim what. Then when the suppliers have their refund the big company can start an interesting conversation with the suppliers about the quality and price of what it buys. Butler calls this process ‘the food chain’. Suppliers and customers alike can gain.
It’s also a good idea to look at the way projects are structured in the future. There are many different ways a project can be structured. Why not organise future projects so that more of the expenditure falls into the baskets marked ‘Claimable’ and less into the other baskets? In this way the ROI criteria can be adjusted, making feasible projects that would otherwise have been out of reach. That’s not cheating; it’s a perfectly legitimate tactic.
‘No one else,’ says Butler ‘spreads innovatory value through the supply chain in the way IT teams do. In one lifetime we have transformed world business. This is a chance to get that transformative power recognised and rewarded. Yet every day I meet people in the IT world who have never even heard of the RDTC, despite the fact that so many IT activities are potential areas for a claim. It’s good to get money back to companies from IT activities. But for me that’s just the starting point. I want to use this situation to enhance the position of IT within enterprises. We have been talking for decades about the need for IT leaders to become business leaders. The RDTC allows IT leaders to become business innovation leaders. I want to hear people in business acknowledge the commercial nous exhibited by the team in IT. It’s a massive opportunity that the IT community can’t afford to miss.
David Butler, CEO Butler Basford and Lord Ltd (BBL); firstname.lastname@example.org