Software, Information Technology and R&D Tax Relief
R&D in software and information technology (IT) involves new ways of solving IT issues, improving processes and developing software. Did you know that the advances made in this sector are key drivers of innovation and new product development across a wide range of other industries? However, the fast paced and diverse application of this industry meant that in 2018, HMRC issued new guidance in regards to claiming the R&D tax relief on software development. Unfortunately, this made it difficult for companies to successfully claim tax relief, but we know something no one else does.
The beauty of software and IT is that the advances made in this sector enable innovation in all other fields.
Software and IT has been one of the most challenging areas for HMRC’s R&D staff to deal with, especially considering that more than 65% of all R&D tax claims are from this sector with an average value of £65,199. Therefore, although there are many opportunities to claim R&D tax relief, HMRC scrutinises this sector’s claims much more closely than others, and has hired their own computer specialists.
However, this shouldn’t discourage businesses from applying as most are undertaking R&D worthy work on a daily basis. Instead, it’s best to use R&D tax consultants that specialise in software to reduce the risk of an HMRC enquiry. We at Novel have been both the advisor and claimant when it comes to R&D tax relief, which gave us a very intimate understanding of how all of this works, where we can claim more or push a little harder.
What is R&D tax credit?
The UK Government’s Research and Development Tax Relief scheme is a way to encourage and reward companies that are investing in innovation.
What qualifies as innovation?
For tax purposes, R&D takes place when you are creating something that will advance the overall knowledge or capability in the field of science and technology. In simple terms, if you are solving industry problems, advancing industry knowledge, resolving uncertainty that industry professionals can’t readily resolve, what is the baseline technology that you are measuring against or anything that could be considered Intellectual Property, you qualify.
Most software and IT projects involve some aspect of innovative R&D activity and how you deal with it may potentially save you money, instead of costing you money. The success of your claim relies on the objective of your project to go beyond routine analysis or adaption of existing products, software or internal management systems. The types of companies that can claim R&D tax relief vary. For example, software development companies, in-house software developers or SaaS businesses can all qualify.
New software, innovative ways of storage, extended functionality, advances in AI, automation, robotics and more, can all count toward R&D tax credit claim no matter whether they have been successful or not.
- Have you created a software that increases the performance of other technology out there, such as speed of trades.
- Have you built a software that integrates third party systems.
- Have you developed new data analytics tools?
- Have you developed innovative software that captures, protects and encrypts data?
- Are you creating new wearable tech?
- Have you been working on developing a game engine to run new video games?
- Have you been training your staff to support your R&D targets?
- Have you been researching and identifying uncertainties in the sector?
- Are you undertaking feasibility studies to back up your R&D project?
- Are you training an AI data/image processing tool?
- Have you created technology that extends the functionality of software programs or an operating system?
- Are you significantly improving cloud software to be used commercially?
- Are you developing a CRM system that requires technological advancement?
- Are you changing or modifying an existing product, process or service?
Want to find out whether you can claim 33% of your R&D costs back?
Find out the unforeseen benefits Net Natives
experienced from their R&D Tax Credit.
This case study highlights one unique company benefit that can be achieved from an R&D tax credit claim. Rarely companies when claiming R&D tax relief are thinking about the cultural aspect of having a successful claim. Yet, the Net Natives case study brings to light both the cultural and psychological victory a company feels when being recognised and rewarded for the innovative work.
Another interesting take away from this case study is that a company does not need to be a traditional software business to be able to claim R&D tax relief. Net Natives are a marketing agency, but sometimes to understand whether a business is doing work that qualifies for R&D tax relief, it takes an outside opinion of a trained R&D specialist, such as the ones we have at Novel.
There is a reason it's called innovation.
Think your project qualifies but we did not mention it above? Most likely! That’s why it’s called innovation. Get in touch with us and let us see whether you qualify for an R&D tax credit.
Apply for R&D tax Credit with novel
Making Sure Your Business Gets the Funding it Deserves
At Novel, we balance between the attention to detail and number crunching of an accountant, with our child-like disposition to anything new, unusual and innovative. To embody this philosophy we even named our company Novel.
We are on a quest to spread awareness about the R&D tax scheme so SMEs all over the UK can get funding to pursue their research. We know that to some businesses finding out about the R&D tax credit scheme was the difference between going bankrupt and continuing their work and starting to make money. To others it was more psychological, it acted as the earliest sense of recognition for their work. If you are an SME and think that you may qualify for an R&D tax credit, we want to hear from you!