Member Article

Patent Box and R&D allowances slash growing Lancashire IT firm’s tax bill

An IT company in Accrington has saved £13,000 on its annual tax bill and stands to recoup thousands of pounds in future tax rebates thanks to accountancy advice.

Responding to developments in the IT sector, Sundown Solutions moved from specialising in SharePoint software projects to a cloud and applications based business model late last year.

Sundown Solutions’ director Heath Groves discussed the company’s change of direction with local accountancy firm Haworths, who had already been providing them with tax advice for around five years.

Haworths’ Jeff Allsebrook advised him that the business could save money on its corporation tax through an HMRC Research & Development (R&D) Tax Relief scheme.

Mr Grove said: “The world of IT evolves all the time and the rise of cloud-based systems and applications is a game-changing development that we wanted to put at the heart of our business.

“By investing in changing our business model and upskilling our team, we went from 29 per cent profitability to 84 per cent profitability within nine months. That growth increased our tax liability, which we simply saw as an integral part of such significant growth.”

Jeff Allsebrook explained to Sundown Solutions that any money the company had invested in research and development could be claimed back from HMRC as a deduction from corporation tax.

As a result, the company’s tax liability was slashed from £29,000 to £16,000.

Mr Grove added: “We’re still working hard to make significant changes to our business model and capture a share of a growing market, so saving £13,000 is a massive boost for us.

“Thanks to Haworths’ advice, our savings won’t end there. Jeff also advised us to take advantage of the Patent Box tax relief scheme which means that we only have to pay corporation tax at a rate of 10 per cent for anything we earn on anything patented by us after April 2013.”

Sundown Solutions has a patent pending on a software encryption mechanism, Sundown Encryption (SE), and has worked with Haworths to submit a Patent Box tax relief application.

As a result, once the patent has been granted, all revenue generated by SE will only be taxed at 10 per cent and Sundown Solutions will receive a retrospective rebate against all profits from the date of the patent application.

Mr Allsebrook concluded: “The Government has introduced several tax relief schemes aimed at helping to drive business success and boost innovation. The problem is that a lot of the SMEs that could benefit the most simply don’t know what they can claim, so they often miss out.

“Our approach is to be proactive in highlighting these potential tax savings to our clients and to guide them through the process so that they can maximise the financial benefits, enabling them to invest in continued growth.”

This was posted in Bdaily's Members' News section by Simon Malia .