Characteristics of the activities of IT companies
The main activities in the IT sector
The IT industry as a whole broadly encompasses three main types of activity: network administration companies, software publishers and digital service companies (ESN, formerly SSII).
Network administration companies are responsible for updating, maintaining, and securing servers, personal computers, peripherals such as printers, routers, and other devices. The activity also involves configuring machines, troubleshooting if necessary, upgrading them, and installing software such as operating systems, database management systems, or application software. It also involves managing the allocation of IT rights within the company and administering databases. Finally, it involves conducting work to prevent failures or secure access and backups.
Software editor’s main purpose is the creation of new software as well as the transformation or evolution of existing software. This involves writing specifications for the future IT product, planning the necessary resources for its development, budgeting the work, writing the software itself in a programming language, and testing and controlling the finished product..
A Digital Services Company (ESN, formerly SSII) is a company specialized in digital services, enabling the IT departments of companies of all sizes to outsource services linked to IT projects conducted by the company as part of its growth. The IT services in question can be related to software development, web interfaces, or IT infrastructures. A DSC is, by nature, a service company. It sells technical skills that generate added value. The capital intensity is generally low, as the capital is mainly made up of the know-how of its human resources.
The clients of our accounting firm, who have activities dedicated to the IT sector, also include web designers, database experts, etc..
Accounting Specificities in the IT Sector
IT-related activities have their own accounting specificities, such as recording work-in-progress related to long-term contracts for software development spanning multiple fiscal years analyzing of the capitalization eligibility of expenses related to software development, recognizing and accounting valuation of work in progress at the end of the fiscal year. These particularities require the involvement of a chartered accountant or statutory auditor with in-depth knowledge of the sector and the related accounting issues.
Tax Specificities in the IT Sector
The tax specificities associated with this sector of activity characterize both the status of companies established for some time and recent companies such as start-ups, which may be eligible for the status of Young Innovative Enterprises (JEI). They concern the patentable nature of their innovative product, which may be eligible for the Research Tax Credit (Crédit Impôt Recherche – CIR), the taxation of their proceeds from the sale or concession of industrial property rights such as patents and similar rights, and the territoriality of their operations from a tax, corporate tax or VAT point of view. These technical tax aspects, related to IT services, also require the company to be accompanied by a chartered accountant with expertise in these areas, as an advisor, or audited by a statutory auditor with expertise in these issues.
Social Specificities of the IT Sector
The relationships between employers and employees in companies operating in the IT sector are governed by the SYNTEC agreement (Convention des Bureaux d’Études Techniques, des Cabinets d’Ingénieurs Conseils et des Sociétés de Conseil). This convention has specificities such as three types of working time arrangements (standard, fixed hours and fixed days), the acquisition of additional days off based on the employees’ seniority, or a vacation bonus equal to 10% of paid vacation pay. Engaging an accounting firm with a good understanding of these specificities for payroll management in your IT company will secure your social management.
Typology of Clients in the IT Sector for our Accounting and Audit Firm
Houdart A&C has in-depth knowledge of the issues faced by companies operating in the IT sector, as we work with various stakeholders in this industry, including software or app publishers, IT support providers, IT security consulting firms, and Digital Services Companies (ESN) that provide developers or project managers to their clients, among others. We provide services to these entities both as an accounting firm and as an audit firm.
We master the specificities and issues that drive the IT sector, particularly in terms of accounting and taxation. Our multidisciplinary approach allows us to offer you a comprehensive service that meets your concerns.
In accounting expertise or statutory audit, diverse skills at the service of your IT services company
Beyond our mission of bookkeeping or accounting review, as a chartered accountant, we offer you personalized service, anticipate your needs, and inform you about social and tax regulatory changes related to your industry in order to implement tailored solutions.
As statutory auditors, we adopt a constructive and flexible approach, relying on substantive tests, but above all on the review of your various processes, in collaboration with your teams in order to build a relationship of trust with them and provide recommendations for continuous improvement of these processes..
The development of our firm in terms of accounting expertise and statutory auditor is based on the technical support of a versatile and regularly trained team, the proximity and availability of partner accountants and auditors, who are attentive to your needs.
Support of the company and its leaders as a chartered accountant of your IT services company
Our mission of bookkeeping or accounting review for your IT services company is primarily aimed at:
- setting up or taking over an IT services business,.
- Ensuring the fiscal security of your projects, especially concerning VAT and deductibility of financial charges.
- Analyzing the economic results of your projects and implementing analytical accounting if necessary.
- Optimizing your financial resources, including external financing.
To ensure the reliability of the financial information established, we assist you in implementing efficient information retrieval and data accounting processes, as well as suitable tools for tracking the value of work in progress and future margins for each project handled by your digital services company.
We anticipate upcoming issues on various projects by gaining a thorough understanding of each one and conducting an analysis of the accounting and tax implications.
We can potentially connect you with tax experts or professionals accustomed to working with IT services companies if our skills do not cover all the issues that may arise, such as analyzing the eligibility of certain projects for the Research Tax Credit (CIR).
If your IT services company is a subsidiary of a foreign group or a company owned by venture capitalists, as a chartered accountant, we produce periodic reports for the fund providers.
We handle the preparation of recurring and one-off tax returns. We carefully study the context and purpose of each of your IT-related company’s projects in advance to identify tax issues, particularly in terms of VAT territoriality or eligibility for the Research Tax Credit (CIR). We support you during tax audits and provide you with updates on tax legislation and changes during the different Finance Laws.
On the social front, Houdart A&C has in-depth knowledge of the collective agreement applicable to the various activities in the IT sector, the SYNTEC agreement, due to the large number of companies operating in this field among our clientele: IT support companies, software publishers, ESNs, etc.
We handle the payroll of employees working in this sector for our clients, assist you during URSSAF controls, establish DSN reports, and can also handle salary payments for your employees.
We carry out the affiliation to the appropriate provident institutions depending on your company’s business branch.
In case of disputes with one or more employees, we provide advice and can put you in touch with a lawyer whom we are ready to recommend in case of labor disputes.
Legal support for your IT services company
Our legal department can help you with the day-to-day and extraordinary legal matters involved in running a company. We are also available to provide you with any advice you may need as a manager of an IT services company, in the course of conducting your business.
Our legal services include: annual legal secretarial services, drafting of certain deeds, minutes of ordinary and extraordinary general meetings, convening of meetings, amendments to the articles of association (transfer of registered office, company name, etc.), formalities with the clerk of the relevant commercial court, etc.
We also assist you in conducting share contributions, company transformations, mergers, and demergers..
When an opportunity for external growth arises, we can carry out an acquisition audit of the target, either as advisors or as statutory auditors, prior to your decision.
Our mission goes beyond preparing the financial statements of your company. For family-owned companies among our clients, we support the business managers in their personal assets management to ensure that decisions related to the company that have an impact on their assets are optimal for both them and their family.
The diversity of our skills allows us to assist you, first and foremost, with your personal tax declarations. We handle your income tax returns in France, as well as your potential real estate wealth tax declaration.
We provide guidance in choosing individual and group health and heavy-risk insurance contracts. We ensure that the formalities for setting up the contracts cover the risk of tax and social adjustments.
If necessary, we support you during your personal tax audits.
For business owners, acquiring real estate for their company often presents an interesting opportunity to reconcile the interests of their business with the development of their personal assets.
We stand by the business owner’s side from the initiation of the project and the decision to invest in real estate to the choice of investment structure, all the way to preparing the necessary documents for obtaining funding from financing institutions.
We have a significant network of specialized professionals in insurance brokerage, notaries, lawyers specialized in social or tax matters, whom we can mobilize to complement our support.
MyUnisoft, a digital, collaborative, and innovative accounting software
We have an innovative, efficient, and collaborative accounting production tool, a real marketplace with an open API, which can connect to most common apps used by entrepreneurs, including digital neo-banks, CRM tools, document management systems, data analysis tools, or payroll software.
Thanks to agreements with most banking institutions, we can set up automatic retrieval of your bank transactions in EBICS format in collaboration with your bank.
We can provide your accounting teams with our software to work collaboratively on your financial data in real-time. Additionally, if you do not have an in-house accounting department, we can handle your accounting entirely.
Frequently Asked Questions related to the Digital Services Companies (DSC) sector
What are the conditions for capitalizing research and development expenses?
Development costs can be capitalized as assets if they relate to clearly identified projects with serious chances of technical success and commercial profitability (PCG art. 212-3).
The following 6 conditions must be simultaneously met:
- Technical feasibility of completing the intangible asset for its intended use;
- Intention to complete the intangible asset and use or sell it;
- Ability to use or sell the intangible asset;
- Ability of the intangible asset to generate probable future economic benefits;
- Availability of adequate technical, financial, and other resources to complete the development;
- Ability to reliably evaluate the expenses attributable to the intangible asset during its development.
What is the tax regime for the sale and licensing of patents and similar rights?
Companies subject to income tax (IR) or corporate tax (IS) can, upon option, apply a reduced tax rate of 10% on the net income from the sale, licensing, or sublicensing of certain industrial property rights.
Eligible assets include patents, protected software, industrial manufacturing processes, and patentable inventions.
This tax regime is applicable upon express option stated in the income tax return for the fiscal year to which it applies.
The net income from the concession is determined by the difference between the revenue generated from eligible assets and the R&D expenses directly related to these assets and incurred. Expenses such as general overheads and industrial property rights defense costs are excluded.
Is an intangible asset depreciable?
The cost of an intangible asset with a finite useful life is depreciable and must be spread over its useful life.
However, an intangible asset with an indefinite useful life should not be depreciated. The useful life of an intangible asset that is not being depreciated should be reassessed at each reporting period to determine whether events and circumstances continue to support the classification of the asset as having an indefinite useful life.
What are long-term contracts in accounting?
Long-term contracts are contracts of generally long duration specifically negotiated for a unique project involving the construction, execution, or, if applicable, participation as a subcontractor in the completion of a complex set of goods and services, the execution of which extends over at least two accounting periods. The entity’s right to receive contractual revenues depends on the compliance of the work performed with the contract.
Long-term contracts are commonly found in the following sectors of activity: construction and public works, engineering, information technology, shipbuilding, aerospace industry, etc.
For long-term contracts, there are two methods of revenue recognition: the percentage of completion method or the completed-contract method.
What is the method of recognition of the result on completion?
The completion method is a method of recognizing turnover under long-term contracts. It involves recognizing revenue only when the contract is fully completed. Work in progress is valued and recorded as inventory based on the costs incurred in the project during the year. No revenue is recognized as the work in progress is recorded. However, any potential losses on completion are provisioned once they become probable and can be estimated with sufficient precision.
What is the percentage-of-completion method ?
The percentage of completion method involves recognizing partial revenue at the end of the financial year by recording progress billings based on the advancement of the contract, whether the expected margin is profitable or unprofitable.
At the end of each financial year, a portion of the contract’s revenue is recognized based on the percentage of completion of the work. The completion percentage is determined in relation to the total estimated cost of the work. The completion percentage at the end of year N is determined as follows: cost of work completed at the end of year N / total estimated cost.
What is the collective agreement applicable to IT services companies ?
The National Collective Agreement applicable to employees of technical engineering offices, engineering consulting firms, and consulting companies (SYNTEC) dated 15/12/1987 (IDCC 1486), extended by order of 13 April 1988, applies to employees of whose main activity is providing IT services.
Why use a firm specializing in IT services?
Whether you are the CEO of a startup, a small to medium-sized enterprise that develops niche software solutions or provides IT outsourcing services, or a larger company with a strong national presence, seeking the advice of an IT-specialized accountant to assist you in the daily management of your company, its external growth projects, and development ensures you have technical expertise to address the challenges inherent to your industry.
Choosing an auditor specialized in IT, network administration, ESNs (Entreprises de Services Numériques), or software publishers ensures a risk-based and value-added approach for your teams. In addition to conducting substantive tests, the auditor provides recommendations for implementing processes to improve your internal control and the reliability of financial reporting.