Taking advantage of any applicable R&D schemes

Taking advantage of any applicable R&D schemes

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- Software product "T" developed over 4 years.
  - Niche product and hoping to eventually get 100 clients paying £120/month.
  - Client turnover would be minimal.
  - Anything higher than 100 would be a bonus.

- "S", Me, Director of existing limited Company "X", spent 4 years developing software idea. (full time, 6 days a week)
  - No income during that period. Saving now gone. Need to make a success of this.

- Business Partner "K" also spent 4 years developing the software

- Created new company "H" 1 year ago with "S"s company "X" owning 50% and "K" owning 50%
  - Completed annual return but no income/outgoings thus far.
  - Income will be by monthly subscription.
  - Minimal outgoings.
  - Profits to be shared equally by dividends to "S"s company "X" and "K"
    - (Assuming that dividend paid to company "X" is not taxed again via Corporate Tax, but only upon distribution to shareholders)

Whilst minimal cash has been spent developing the software, a lot of time has been invested.
It is ambiguous/fluid as to:-
1) Whether the software yet has a value. On one hand it could be considered zero because none is yet sold but it would have cost £400K+ to develop based on my former software contractor rates and I would like to see at least some recognition!
2) Who currently owns the software and who should own/licence the software.
3) Whether the fact that development of the software started before the creation of Company "H" prevents any claim based on "R&D" (if appropriate). Or maybe would allow 1 of the 4 years.

What I am looking to find out is how best to structure the above situation so as to best use any available tax credits/reliefs/writing down/offsets or account methodologies (legally!) so that the costs of developing the software are recognized and taken into account when 
calculating profits and tax for Company "H" in future. 
(There is complete flexibility about moving ownership of the software into company "H" whether gifting, licencing, selling etc.)

Any help gratefully received.

Replies (5)

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By free-rider
09th May 2016 10:18

What was the actual cost of development put through the books of company “X”?

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By simmotech
09th May 2016 10:36

Nothing at all.
Income for Company "X" is all from my wife (we are 50% shareholders), none at all from me. There is just enough to pay us each a small salary each month - enough for the NI stamp.
So me developing software could be considered as being done for Company "X", me personally, or possible Company "H" (for the last year) but nothing is recorded in any books to that effect.

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By free-rider
09th May 2016 12:04

You would not be able to claim any R&D if you have developed the software for yourself as you need to be corporate entity to claim R&D relief.
As regards to the company “X”:
My knowledge of the R&D tells me that the maximum costs they could allocate against R&D would be the actual costs to the company “X” – i.e. your salary + NICer. For the profit making company that might reduce CT liability or for the loss making company either increase losses to be used in the other years or R&D losses could be surrendered for the payable tax credit.

The fact that “it would have cost £400K+ to develop based on my former software contractor rates” is IMHO irrelevant as this cost does not exist.

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Replying to free-rider:
By free-rider
09th May 2016 12:05
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Replying to free-rider:
By simmotech
09th May 2016 16:39

I'm beginning to think R&D is a non-starter then for my circumstance but will have a look at the document you posted.

However, whilst Costs, actual or otherwise, don't exist, the value of the software surely is non-zero. It might not be £400,000 but it surely isn't worthless.
So maybe I should be looking for an alternative accounting solution to reduce CT liability.
Licencing? Goodwill account? One company invoicing the other? Anything legal considered.

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