Software, Information Technology and R&D Tax Relief
R&D in software and information technology (IT) involves new ways of solving IT problems, improving processes and developing software. Did you know that the advances made in this sector are the key drivers of innovation and new product development across a wide range of other industries? However, the fast-paced and diverse range of claims of this sector 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 keep abreast of all guidance and legislative changes to make sure the claims we do for our clients are successful.
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 more closely than others, and has hired their own IT specialists.
However, this shouldn’t discourage businesses from claiming, as most are undertaking R&D-worthy work on a daily basis. Instead, it’s best to use R&D tax consultants who specialise in software to reduce the risk of an HMRC enquiry. We at Novel have been both the advisor and the claimant when it comes to R&D tax relief, which gives us a very detailed understanding of how to make the most of a R&D claim for a software project.
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, you qualify.
Most software and IT projects involve some aspect of innovative R&D activity. 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 agencies, 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 a R&D tax credits claim no matter whether they have been successful or not.
- Have you created a software that increases the performance of other technology?
- 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 gaming engine to run new video games?
- Have you been training your staff to be able to carry out specific R&D activities?
- 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 advancements?
- 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?
There is a reason it's called innovation.
Think your project qualifies but we did not mention it above? Get in touch with us and let us see whether you qualify for an R&D tax credit.