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software development - capitalise & AIA?

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I have a client who has developed some software for internal use, which they will use in order to service their clients. However, in a few years (2 or 3) they are considering the possibilty of turning it into a SaaS revenue stream.

It qualifies as an R&D project. At this stage, I want to capitalise the development costs & depreciate over 3 years, claim AIA and the extra 130% R&D. 

I've 2 questions:

1. Am I right ((and if not what should I do - appreciate that makes it 3 questions)?

2. What should I do in 2/3 years if it does turn into a SaaS income generator?

Thanks

 

Replies (14)

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Psycho
By Wilson Philips
04th Nov 2019 13:34

You cannot claim both capital allowances and enhancement on the same expenditure.

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Replying to Wilson Philips:
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By atleastisoundknowledgable...
04th Nov 2019 13:50

Am I being dense then - hows does one get one's 230% on the CT600?

(Client is loss making and after the 14.5% cash)

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Replying to atleastisoundknowledgable...:
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By The Dullard
04th Nov 2019 13:56

I assume you are also aware that once you've claimed R&D relief, you cannot also get relief for the amortisation of the intangible created?

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Replying to The Dullard:
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By atleastisoundknowledgable...
04th Nov 2019 14:07

The Dullard wrote:

I assume you are also aware that once you've claimed R&D relief, you cannot also get relief for the amortisation of the intangible created?

Yes.

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Replying to Wilson Philips:
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By The Dullard
04th Nov 2019 13:56

But relief can be obtained for the initial 100% as a deduction from profits by virtue of CTA 2009, s 1308, which is a pre-requisite for claiming the enhancement.

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Replying to The Dullard:
Psycho
By Wilson Philips
04th Nov 2019 14:28

I know that. But there is an important word in 1308(1)(b) which precludes a claim to capital allowances, which is what I was driving at.

One also has to be satisfied that the expenditure is of a revenue nature, nothwithstanding the treatment in the accounts. The more common expenditure treated as such is staffing expenditure, which will invariably be revenue in nature. Software development? Possibly.

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Replying to Wilson Philips:
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By The Dullard
04th Nov 2019 15:40

Wilson Philips wrote:

One also has to be satisfied that the expenditure is of a revenue nature,

That turns on two important words in 1308(1)(a)

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Replying to The Dullard:
Psycho
By Wilson Philips
04th Nov 2019 15:06

I don't follow. The expenditure will be of a revenue (or capital) nature depending on the facts and circumstances, regardless of the wording in 1308(1)(a). If it turns out to be revenue in nature, then 1308 can apply. If it's capital, then 1308 is not in point.

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Replying to Wilson Philips:
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By The Dullard
04th Nov 2019 15:46

That is my point. Your point is made by s 1308(1)(a), and it needs two words, rather than just the one. There is nothing in s 1308(1)(b) that would preclude a claim to capital allowances if it were expenditure of a capital nature.

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Replying to The Dullard:
Psycho
By Wilson Philips
04th Nov 2019 16:34

How often have you claimed capital allowances on an intangible asset?

The point that I was making was that if the expenditure qualifies for the enhanced deduction, even though capitalised as an intangible asset, the fact that it is an intangible precludes any thoughts of capital allowances as well (remember, the OP wanted both).

I agree, though, that if one has already established that the expenditure is not capital (and therefore within 1308(1)(a)) then that too precludes a claim to CAs.

My confusion was your suggestion (my inference) that the revenue/capital question was to be decided by (turns on) the wording of 1308(1)(a). It doesn't - the revenue/capital question is decided on its own merits.

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Replying to Wilson Philips:
Lone Wolf
By Lone_Wolf
04th Nov 2019 16:39

Wilson Philips wrote:

How often have you claimed capital allowances on an intangible asset?

The point that I was making was that if the expenditure qualifies for the enhanced deduction, even though capitalised as an intangible asset, the fact that it is an intangible precludes any thoughts of capital allowances as well (remember, the OP wanted both).

>

Does an election under CTA 2009 s815 not enable you to exclude software from the IFA rules, and so claim capital allowances on it?

Not disagreeing with your main point though that OP can't have it both ways. It's either capital, in which case he has to opt for IFA treatment, or CAs if s815 election is made. Otherwise it's revenue, and to claim an enhancement on it an election under s1308 is required. The capital/revenue question is determined on it's own merits as you say.

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Replying to Lone_Wolf:
Psycho
By Wilson Philips
04th Nov 2019 16:52

Fully agreed. Yes, one can elect to take CA's instead of IFA treatment. But, as you say, the election is available only in respect of capital expenditure. So you don't even get to 1308.

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Replying to Wilson Philips:
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By The Dullard
04th Nov 2019 16:52

Well, the intangibles legislation does make provision for the regime to not be available to intangible assets on which capital allowances are claimed.... like software!

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Replying to The Dullard:
Psycho
By Wilson Philips
04th Nov 2019 16:59

Yes, I know, but my comments were in the context of the OP's question.

I know what I meant ...

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