R&D Tax Credits for cloud computing and data licenses Post April 2023
A Pivotal Change in R&D Tax Credits
Innovation isn’t just about creating new technologies, it’s also about facilitating their development. One key way this happens is through R&D Tax Credits. Until recently, businesses could claim relief on revenue expenditure categories such as staffing costs, subcontractors, externally provided workers (EPW’s), consumables, software licenses, utilities, and clinical trials.
For claim periods starting on or after 1 April 2023, in addition to the categories above, R&D Tax Credits for cloud computing and data licences can be considered as a qualifying cost category when employed in activities which directly contribute to the resolution of scientific or technological uncertainties.
Data licence is a licence to access and use a collection of digital data. This includes data sets which could be licensed in various ways such as data feed subscription or data as a service (provided that the business does not obtain ownership of the data and the costs to obtain the data is a revenue expense). Additionally, the staff costs gathering data can be qualifying expenditure under the staff costs category.
The Value of Data Licenses in R&D
Data licenses allow businesses to access and use a collection of digital data without acquiring its ownership. This includes various data sets which can be licensed in different ways, such as data feed subscriptions or data-as-a-service. The cost of obtaining this data, along with the staff costs involved in data gathering, are also included in the qualifying expenditures under the staff costs category.
Incorporating the costs of data licenses into R&D Tax Credits opens up new possibilities for businesses, particularly in the realm of software and data engineering R&D. This involves significant time and effort to sort, store and arrange vast amounts of structured and unstructured data sets over the course of R&D projects. Let’s look at some examples:
Data Licenses in Practice
- Environmental sustainability: this includes using climate data, sensor data, or satellite imagery to model environmental impacts, and monitor climate change.
- Autonomous systems: this includes using data from autonomous vehicles or robots to train machine learning models for better navigation, obstacle avoidance, and control.
- Manufacturing optimisation: data licence can be used to process production data, sensor data, or quality control data from manufacturing processes. By analysing the licensed data, engineers can identify bottlenecks, optimise production workflows, and implement predictive maintenance.
- Failure Analysis: this includes data related to component failures, maintenance records, or environmental conditions to conduct failure analysis. By analysing this licensed data, engineers can identify failure mechanisms, improve designs, and enhance reliability and durability of engineering systems.
- Simulation and modelling: This includes licensing data for computational fluid dynamics (CFD), finite element analysis (FEA), or electromagnetic simulations. The licensed data can be used to validate models, calibrate simulations, and improve accuracy in engineering designs which contribute to virtual prototyping, and optimisation of engineering systems.
- Software security and vulnerability: software developers can use datasets related to cybersecurity incidents, threat intelligence, or vulnerability reports. By analysing licensed data, developers can identify security vulnerabilities, improve software security practices, and develop software systems with enhanced protection against cyber threats.
The Power of Cloud Computing in R&D
Cloud computing services include the provision of, access to and maintenance of remote data storage and hardware facilities and operating systems and software platforms. If a business creates its own computer infrastructure, some of the operating costs of these facilities may be qualifying expenditure cost categories such as staff costs or software licences.
The inclusion of cloud computing costs will allow businesses to claim relief and pursue innovation over a wide range of applications particularly in engineering and IT, examples of which include:
Cloud Computing Applications
- Pharmaceutical and drug delivery: cloud computing can be leveraged to analyse large datasets, conduct virtual screening, and perform molecular modeling to identify potential drug candidates.
- Artificial Intelligence (AI): cloud computing can be used to train complex AI models, develop and optimise natural language processing algorithms, and develop autonomous and intelligent automation systems.
- Engineering research: cloud computing can be utilised in engineering research for computational fluid dynamics, structural analysis, optimisation of fluid and heat transfer systems.
- Quantum Computing: cloud computing can support quantum computing research in terms of experimenting with newly developed quantum algorithms and simulations. This can contribute to multiple applications in cryptography and optimisation problems.
- Internet of things (IoT): cloud computing can facilitate R&D in IoT and sensor technology. This include processing and analysing large volumes of data, developing algorithms for data fusion and patten recognition which can utilised in applications like smart cities, healthcare monitoring, and industrial automation.
How We Can Help
Innovation Tax and its team of tax and technical professionals have extensive experience in helping businesses claim R&D tax credits for cloud computing and data licenses. We ensure your claim is robust, maximised, and fully compliant with the prevailing legislation.
Contact our team of specialists to discuss how we can support your business with not only R&D Tax Credits but other incentives such as Capital Allowances, Patent Box and Grant Funding.