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Government changes to R&D tax credits for businesses using cloud computing software would supercharge the growth of UK technology

by jcp

By Iliass Ikhanjal, Leyton UK

Cloud computing is regarded as the key to unlocking the next stage of a technological revolution that has been progressing in the UK over the past decade. The UK tech scene has experienced dramatic growth in the past decade, creating jobs and opportunities, and leading to cross-sector collaboration that has pushed innovation forward. However, cloud computing software businesses are currently being overlooked for valuable R&D tax relief support, which could help to supercharge the UK tech sector.

The UK Fintech industry, for example, has been built on the foundations of cloud computing which is an enabler of the sector. Whilst the great successes of UK Fintech are held in high regard, it is cloud computing software that has enabled many of these fledgling businesses to thrive.

Cloud computing adoption has accelerated

The COVID-19 pandemic has accelerated the adoption and use of cloud computing, driven by businesses and consumers who have sought solutions to a new way of working and living. Remote or hybrid working before the pandemic, for example, was rare for many working in office-based roles. In 2020, however, the proportion of people working from home more than doubled during the COVID-19 pandemic, and cloud computing facilitated business continuity and online collaboration.

Cloud computing software enabling a digital workforce

During the COVID-19 pandemic, cloud computing software companies grew at an extraordinary rate, and the UK was not exempt. As the nation was forced inside and onto digital devices, cloud computing gave businesses the ability to continue operating. It provided access to files from anywhere, shared access so that teams could work collaboratively whilst not physically near each other and all whilst retaining or even increasing security levels. The need to adapt to become a digital workforce was enabled through cloud software and accelerated what had for many been a long-term goal in just months. In fact, after only a few months into the pandemic, Microsoft CEO Satya Nadella noted that the company had seen two years’ worth of digital transformation in two months.

The benefits to businesses are clear

Cloud computing software has already offered a vast range of benefits to businesses that have boosted their capabilities. These have included enterprise services, allowing them to host their data and run their applications from the cloud, both of which crucially important as businesses were unable to access their hardware in the same way as before the pandemic. And for those who were reluctant to use cloud computing software, these businesses were forced to adapt to a new normal. This trend is firmly in the direction of further adoption and integration of this technology.

Emerging technologies have benefitted from R&D Tax credits

Despite the raft of technological innovations that cloud computing has already produced there are still more advances being made in the technology and even the initial step into using the cloud can come at a significant cost for some businesses. With this is mind, it is surprising that it is not supported by the UK Government in terms of innovation funding.

The success of R&D tax credits has been proven by its impact on emerging technologies such as Blockchain, which has helped to drive relevant companies to innovate and introduce new products in this space. The Government should be levelling up opportunities for those technologies which are clearly beneficial to more businesses, and which have already had such a crucial impact on the way we work.

Qualification for R&D tax credits vary

Currently, software licences may qualify for R&D tax credits, whilst some other cloud computing costs, such as storage rental, support and processor running time, cannot. Despite R&D tax relief support for fintech, which has helped in making the UK an international centre of fintech excellence, this is not being extended to cloud computing software companies, a key enabler of the tech industry. Data and cloud computing services are being seen by industry leaders as key tools in helping businesses to adopt state-of-the-art technology in the near future, such as AI. Cloud computing is regarded as a sector that will help businesses to grow their digital capabilities, helping to support both product development and also research.

Cloud computing under review

Cloud computing is currently under review for whether it should qualify for wider R&D tax credits and we believe that it should be able to receive the same relief. The government has already accepted that there is a strong argument for data and cloud costs to be brought into the scope of reliefs, but so far no action has been taken. It is essential that cloud computing businesses continue the growth they experienced during the pandemic. Whilst the cloud computing is already a significant sector in the UK, further Government support will help the UK to retain its position as a leader in technological innovation.