Defining software development is one of the most nuanced areas in R&D. As set out by the UK Government, the projects need to “seek an advance in computer science or information technology” and aim “to overcome technical uncertainties”. Whilst this may imply that the projects need to be innovative, pioneering and ground-breaking, the definition of R&D is purposefully very broad.
Software development accounts for 65% of all submitted claims and HMRC tend to review up to 20% of random software claims as opposed to 5% of claims coming from other industries, which is why it is crucial to ensure that both the correct expenditure has been claimed and technical evidence of development is solid.
There are many areas of expenditure which you can claim, including direct and contract R&D staff costs, consumable items, software licenses, power used in R&D projects. You can also claim for software development even if it is not your company’s main business, yet the projects you undertake involved qualifying software development activities.
The type of activities that qualify are also wide ranging, with many companies unknowingly performing R&D tasks daily. Often, some jobs that are seen as part of daily business life could actually make up the basis for a substantial R&D tax relief claim. However, the routine projects that didn’t require advancements in capabilities or resolution of technical challenges must be discounted.
It is not always straightforward to draw the boundaries between qualifying and non-qualifying R&D activity, and this requires specialised knowledge of HMRC guidance. Companies that complete their claims themselves risk mis-claiming their well-deserved software development tax credits, and accountants tend to be less diligent in understanding their clients highly technical software development practices and the complexities involved.
Apart from correctly identifying qualifying activities, it is also imperative to submit comprehensible and evidence-based justification of these activities to HMRC. Our specialists understand software development methodologies and the criteria for qualifying activities. With vast experience in software, combined with extensive experience in R&D tax, we know exactly how to translate software developers’ jargon into comprehensive information that proves to HMRC the eligibility of your projects. We invest our time and effort in understanding how your development works and what areas qualify for the tax credits. We know exactly what sort of information to include and what not to include in the claim.
If your company is involved in software development and you are unsure, contact us so we can provide a comprehensive and authoritative review of your projects and the areas that qualify for R&D tax credits.