R&D tax credits: what can I claim for software development?

The Research and Development (R&D) tax credit scheme is a UK government incentive aimed at rewarding and encouraging innovation for companies operating in the UK.

You can claim in any sector, from food to space, construction to healthcare, and there are countless ways in which a company can qualify.

One of the biggest and most nuanced areas in R&D is software development, and accounts for 65% of all submitted claims to HMRC. Here’s how to define your software development activities, plus some tips for making sure your claim is watertight. 

Defining software development

Broadly speaking, a software development project needs to seek an advance in computer science or aim to overcome technical uncertainties.

Although this might initially imply that the project needs to be innovative, pioneering and ground-breaking, the definition is purposefully very broad. Essentially, software development is a comprehensive process that eventually creates a working product or a service for your business. 

So what activities qualify?

You might be developing a new software solution, or enhancing an existing one, to resolve a particular problematic area in your business – whether that’s a bold idea for tomorrow, or profit-driven improvements to help your business resolve technological challenges in the present.

The types of qualifying activities are wide-ranging, spanning from developing a new product, process or service, or enhancing an existing one. The common examples of software development projects that might qualify for R&D tax relief are:

And software development doesn’t have to be your main business activity. Some jobs that are part of daily business life, involving software development activities, could make up the basis for an R&D claim. But keep in mind that routine projects and processes that don’t require advancements in software development will be discounted.

What expenditure can you claim?

The types of cost you can claim for software development are varied. Costs typically include direct and contract R&D staff costs, subcontractor and contract workers, software licenses, and power used in R&D projects.

Again, be aware that if software development is your main business activity, there are some expenditures you can’t claim. Speaking to an R&D tax relief expert, will help you understand the nuances of what you can and can’t claim if your business is in software development. 

Submitting your claim: evidence-based justification

Apart from correctly identifying qualifying activities, your business will also have to submit a convincing and evidence-based technical justification of your software development activities to HMRC.

The claim should clearly outline the challenge or technical issues the software development aims to resolve.

Whether the project itself was successful or not, is not crucial as long as the activities meet the criteria. Make sure that the technical uncertainties are quantifiable software problems, as HMRC will really scrutinise the evidence presented in your report.

How can R&D specialists help?

R&D tax have specialists who can help you understand and navigate the criteria for qualifying software development activities.

If your company is involved in software development and you are unsure what you can claim, or how to claim, contact us so we can provide a comprehensive review of your projects and the areas that qualify for R&D tax credits.

For readers of Brighton Chamber, we are offering a 20% discount from our usual rates. Contact us at info20@randdtax.co.uk to find out more.

More information and testimonials can be found on our website.

If you want to contribute to the Chamber blog, contact us on hannah@brightonchamber.co.uk