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0 pointsfauigerzigerk9mo ago0 comments

That was my first thought as well, but on second thought I can see how this might cause problems:

For established profitable software companies there was a cliff edge in 2022 when this change kicked in. Staff costs for previous years had already been fully expensed while only 20% of the current year's costs could be deducted.

Second, any sudden increase in research expenditures is now discouraged. This could make companies less nimble.

For unprofitable startups it could cause issues during a phase of very high revenue growth. They could suddenly be liable to pay corporation tax in spite of the fact that they are not profitable in any reasonable sense of the word. It would smooth out later, but that may be too late for some.

What I do not believe for a second is that this is causing major job losses. Companies like Microsoft or Meta do not reduce research or software development just because there is a temporary tax hit. It could be an extra incentive for an efficiency drive I guess.

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netcan9mo ago

> For unprofitable startups it could cause issues during a phase of very high revenue growth.

So I guess my most question is "how this work irl?"

Say a new startup raises money and hires 20 people. Pays $5m in salaries, office space and such. All 20 people are developing a software product. Are 100% of this startups expenses amorotized?

Then they sell the product. They receive $2m in revenue. What does the P&L look like.

fauigerzigerkOP9mo ago

If they hire 20 devs in their first year paying $5m in salaries, only $1m or $500k (if the mid-year convention applies) would count as a business expense in that first year.

If their revenue was $2m, that would leave them with $1m (or $1.5m) of taxable profits unless that was eaten by other costs.

It doesn't have to be a problem, but if revenue grows fast and they go on another hiring spree in the following year then it could become a problem.

That said, if revenue grows so fast, it seems likely that they would have huge marketing and sales costs that could be expensed immediately. So maybe this isn't really a problem for many startups. I'm not sure.

t0mas889mo ago

1 million profit, while they have 3 million negative cashflow, that's exactly the problem. They can only take 20% of that 5 million in R&D investment as depreciation in the first year.

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