Cloud-based computing and data models have become increasingly popular in recent years, as businesses seek to find simple and cost-effective alternatives to traditional ‘buy, build, maintain’ IT models.
Businesses were already becoming aware of the importance (and, indeed, the necessity) of scaling up their digital transformations. However, the COVID-19 pandemic only further emphasised the power of these technologies - and not only in the public health response. Businesses became reliant on data insights to interpret market changes, adapt to a ‘new normal’ and research and develop new products or services to maintain (and support future) business growth.
Organisations have recognised that cloud-based IT and data models are integral to digital transformation, presenting a whole host of benefits from internal efficiencies to external resilience. Because of this, cloud and data services are on the radar of SMEs of all sizes and all sectors. Today, we’re exploring the impact this could have on research and development.
What is The Cloud?
It’s a term we’re all familiar with, and many of us use it on a regular basis - but what exactly is ‘The Cloud’?
The Cloud encompasses a series of servers accessed via the internet, in addition to the software and databases that run those servers. It’s devised using one set of common code and data definitions, which are consumed in a one-to-many model. This means that, by using cloud computing and data models, a business’s IT infrastructure can be managed and run externally.
Sounding a bit too complicated? It’s not as daunting as it sounds - in fact, you most likely utilise The Cloud regularly. Google Drive, Dropbox, iCloud and WhatsApp are just some of the common everyday examples of cloud computing in action.
How could The Cloud help to improve R&D?
So, we know what The Cloud is and we know how businesses utilise it - but what does this all mean for your R&D endeavours?
Cloud-based computing and data models boast a range of advantages that benefit both your research and development processes and your wider R&D scope:
Utilising The Cloud enables businesses to roll out new technologies and scale up or down without the need for overly complex setup and deployment plans.
Why does this matter? Well, it affords your business greater flexibility when it comes to embarking on research and development, with more effective means of communication and data-sharing widening the scope of potential avenues to explore. Not only that - it also enables businesses to improve the efficiency of research and development by shortening the R&D cycle.
The Cloud, then, aids your ability to identify R&D opportunities, establish goals and conduct qualifying activity with less risk and greater efficiency.
This efficiency is further enhanced by the ease of collaboration that The Cloud affords businesses.
Cloud technologies support every aspect of a business’s research and development in a single, scalable and fully integrated offering. This means businesses are able to seamlessly communicate, share information and work collaboratively in research, development and beyond. Unsurprisingly, this goes a long way in improving the efficiencies of in-house processes to the benefit of everyone involved.
This becomes particularly useful in instances where your R&D project is collaborating externally with subcontractors, freelancers, competent professionals or institutions. Likewise, it’s also incredibly beneficial when the members of your R&D team are working from different locations, as was common throughout the pandemic.
Take Huawei, for example. Their cloud-based computer-aided design (CAD) solution enabled the cross-region collaboration of engineers from different R&D centres - a unified workspace solution that saw the efficiency of IT processes improve by 30%.
Mobility and 24/7 data access
As Accenture accurately identifies, “R&D requirements for large data sets and associated computing capacity - as well as collaboration across entities - makes R&D a prime candidate for cloud applications”.
Perhaps surprisingly, it’s far from uncommon for valuable data to be saved on local hard drives and storage area networks. This can bring with it a wave of storage capacity, accessibility and security concerns.
The Cloud, in contrast, enables businesses and organisations to source, transform, analyse and share data and records with significantly more efficiency, ease and security. Data sharing becomes flexible, scalable and instantaneous.
What’s more, with 24/7 mobility and access, The Cloud can also aid R&D projects working with external collaborators overseas, as well as businesses looking to operate or expand internationally.
Improved cost savings
Of course, the simplified deployment and efficiencies The Cloud affords businesses amount to a far more cost-effective R&D process.
The Cloud removes the need for costly infrastructure alterations and additional IT support, regardless of your endeavour. This means digital transformation through cloud computing and data models enable businesses to expand their research and development with far lesser financial implications.
Combine that with the resource saved through more efficient processes and practices, and cloud-enabled R&D becomes increasingly beneficial to your overall ROI.
The evidence is there for all to see. The Lloyds Business Digital Index analysis found that small businesses utilising cloud-based IT systems and digital training tools averaged £262,000 greater annual turnover than those who used none.
Can you claim R&D Tax Relief on The Cloud?
So, with The Cloud increasing the efficiency and overall potential of a business’s research and development efforts, can you claim R&D tax credits on the cloud computing costs themselves? After all, does this not aim to innovate a modification to an existing product, operation or service, as required by the UK’s R&D tax relief eligibility criteria?
Unfortunately, it’s slightly more complicated than that.
Remember: you’re only able to claim R&D tax relief on revenue expenditure from certain aspects of your research and development, this currently encompasses:
- Materials and consumables
- Externally provided workers (EPWs)
- Freelancers and subcontractors
Right now, cloud computing costs don’t fall under any of these brackets. While some costs may be eligible to be categorised as ‘software’, storage, telecom and data costs are not included in any of these definitions, meaning relief on cloud computing expenditure is rare.
Of course, this will ultimately be dependent on a range of other factors and will be unique to your project’s specification, method and circumstance.
R&D and The Cloud: looking to the future
In previous Government Budget reviews , Chancellor Rishi Sunak announced there would be a large-scale review and consultation to determine whether cloud computing and data costs should be considered qualifying R&D expenditure.
While the UK Government maintains that a wider consultation based on a holistic review of R&D tax reliefs is necessary to ensure the scheme remains fit-for-purpose in a rapidly evolving R&D landscape, the future looks bright. The Government will now begin to consider the possibility of bringing these costs into the R&D scope, alongside a number of additional policy priorities.
The benefits of this have the potential to be substantial. As technological and digital transformation continues to play an integral role in business and industry development, cloud-based computing and data models will enable businesses to adopt current technologies and enjoy the resulting growth.
The Cloud could help to innovate research and development practices and create next-generation R&D that sees UK businesses thrive at the forefront of industry technology.
Whatever project you’re pursuing, always ensure you’re maximising every R&D opportunity. For a helping hand, get in touch with Lumo today.