Is Government policy on Software R&D Tax Credit Claims working?
Date: 12th October 2018
Throughout the history of the UK R&D schemes those claims relating to software development have often proved the most difficult for HMRC to deal with. There has almost been continual change in approach, reviews, training of inspectors, and guidance. For claimants this is disruptive and confusing. Software is treated differently than other areas of R&D. They appear to shine a spotlight on software in a way that they don’t with any other sector of industry.
The latest changes have been:
- From the autumn of 2017 the use of the Chief Technology Officer (CTO) of HMRC to support Tax Inspectors who are unsure about claims.
- New updated Guidelines launched in October 2018 mentioning the above “computer specialists”. It also acknowledges that they are unlikely to be competent technical professionals in a claimant’s R&D project.
Purpose of the R&D scheme
“The R&D tax relief schemes are intended to encourage expenditure on R&D. For some companies, particularly small start-up companies, the cash flow that can result from a payable credit can make the difference between success and failure.” CIRD 80520
The Software Industry in the UK
The UK is home to Europe’s biggest software industry, with a direct value-added GDP contribution of £75 billion in 2016 up 31.5% over two years. It employs almost 700,000 directly and distributed £32 billion in wages.
Global innovation in the Software Industry in the last 10 years
The iPad, Google Chrome, Snapchat, Airbnb, Spotify, Oculus, Stripe, Instagram, Kickstarter, GPS on smartphones, Lyft, Pinterest, Square, 4G, Uber, Venmo, WhatsApp, and Slack all emerged in the last ten years. I could go on. It can be argued that we are in a Fourth Industrial Revolution (4IR) with advances in information technology at its core.
Should the Government be supporting the Software Industry, especially with the current political headwinds?
It is early to make a judgement on the latest raft of changes mentioned at the start of this blog. But it is very hard to score a goal if someone keeps moving the goal posts. Uncertainty damages the aim of the R&D scheme and hits investment decisions. Software claims should be treated fairly by HMRC. It harms the prospects for growth in a critical sector of the UK economy to harden or alter the view on qualification in this sector.