27TH MARCH, 2019

What Software Projects Qualify for R&D Tax Credits?

We are on the cusp of a technological avalanche, where artificial intelligence and augmented reality are starting to become a part of our daily lives. For this reason, software development is one of the biggest areas for which you can claim R&D Tax Credits. Since the launch of the UK Government’s Research and Development Tax Relief Scheme, at least £21.4 billion has been claimed, largely by small and medium-sized enterprises (SMEs). In the 2016-17 period, 26% of these claims came from the ‘Information and Communication’ sector. These figures tell us that the R&D tax credit scheme is as much for those involved in engineering and design as those working in scientific research. Qualifying is much easier than one would expect; if your company has a project which has sought or is seeking an advance in science and technology, you may be able to claim R&D Tax relief.

What is R&D Tax Relief?

Overcoming difficulty in a project which provides an advance for your industry is the basic requirement for this government scheme. It can be claimed on many different types of projects, like those which improve an existing process, product or service and even those which have tried to do the aforementioned but failed. Even small companies who have been subcontracted can claim, even if the overall project doesn't qualify. You can claim R&D Tax Relief up to two years after the accounting period closes.

How does this apply to software development?

The software industry is constantly moving, which makes the industry highly susceptible to many forms of innovation and research and development. Usually, R&D is found in the search for new architecture techniques or software constructs, taking place at the algorithmic, design or architectural level. The customisation of software to a company’s needs is not enough to qualify; the project must make a technological advance for the field. The key to working out if your project would qualify is proving that an industry professional could not easily deduce your method.

According to the government’s guidelines, there are many parts of the process which can be claimed for:

  • Planning – outlining and estimating for the R&D elements in your project qualifies.
  • Analysis, design and development – activity relating to the R&D activity qualifies.
  • Testing – as long as the tests aid development, they qualify. Confirmatory tests after or during the project are completed will not qualify.
  • Maintenance – in general, maintenance activity does not qualify, unless new problems emerge which require R&D.

Final Thoughts

Software development is a key sector for R&D Tax Credits as it is innovative by nature. The fast pace of the field ensures R&D is always occurring. If your company can prove your project has found an advance in technology to the benefit of the industry, then you may be entitled to R&D Tax Relief. However, if you are unsure, feel free to give us a call and we can confirm you're eligibility.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Deborah Chapple Deborah Chapple ATT Corporate Tax Director
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant