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Uncovering Hidden Value: Example Areas for Software R&D Tax Claims

  • February 13, 2025
  • 9:19 am
  • Blog, IT Sector

The world of software development is constantly evolving, but not every project qualifies for R&D tax relief. For a claim to be valid, a company must be seeking an advance in science or technology while tackling uncertainties that competent professionals cannot readily resolve. Many businesses overlook opportunities to claim R&D tax relief because they assume software development is routine. However, if you are developing innovative software solutions, your work may qualify.

What may qualify as Software R&D?

HMRC applies strict criteria to software R&D claims. The work must involve overcoming technological uncertainties—challenges that could not be easily solved with existing knowledge, tools, or frameworks. These projects often push the boundaries of what is currently achievable in software development.

Some areas where software R&D may qualify are below:

1. Hybrid Cloud Architecture and Security Enhancements

Companies developing high-performance, secure hybrid cloud solutions may qualify for R&D tax relief. For example, creating an internal certificate authority that seamlessly integrates across cloud environments, while ensuring security without relying on third-party systems, presents clear technological uncertainties.

2. Artificial Intelligence for Fraud Detection

Machine learning and AI play a crucial role in fraud prevention, but simply applying standard algorithms does not qualify as R&D. If a company is developing self-reinforcing artificial neural networks (ANNs) to detect fraud in real-time—where traditional models fail—this could meet HMRC’s criteria.

3. Streaming Video Quality and Data Integrity

Ensuring high-quality streaming without frame loss, particularly in high-latency environments, is a complex challenge. Developing proprietary real-time synchronisation algorithms that guarantee frame-by-frame video integrity would be a strong candidate for R&D tax relief.

4. Advanced Data Processing and API Development

If standard REST APIs do not support complex data reconciliation across multiple formats and protocols, developing a bespoke API translation system may qualify. A company working on automated multi-protocol data synchronisation and auditing, beyond what existing frameworks offer, is undertaking a significant technological advance.

5. Real-Time Data Synchronisation and Websockets

Many businesses rely on customer relationship management (CRM) systems, but integrating them with real-time frontend notifications can be challenging. If a company has developed a custom Websockets-based data streaming service to overcome framework limitations and deliver real-time updates, this could be considered R&D.

How to Identify and Maximise Your R&D Claim

Not all software development qualifies for R&D tax relief, but businesses should evaluate projects against HMRC’s key tests:

  • Is there a technological uncertainty? If the solution is obvious or could be readily implemented using existing methods, it is unlikely to qualify.
  • Does the work push beyond standard frameworks? Customising off-the-shelf software or applying existing tools is not enough.
  • Would a competent professional in the field struggle to find a ready-made solution? If so, the project may be eligible.

By maintaining thorough documentation of challenges, methodologies, and breakthroughs, companies can strengthen their claim and maximise their R&D tax relief. The devil is in the detail and claims must be carefully assessessed against the Guidelines for qualification.

It is also useful to consider our companion blog again on software R&D that looks at the importance of technological uncertainties.

Cracking the Code: Real-World Technological Uncertainties in Software R&D

Unlock Your Software R&D Potential

If your business is investing in software innovation and overcoming technological uncertainties, you could be eligible for significant tax relief. Don’t let potential claims slip through the cracks—speak with an R&D tax specialist to ensure you maximise your entitlement.

Get in touch with our experts today.

Christopher Toms MA MAAT
Compliance Director, RandDTax

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