Research & Development for Software & Development

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18 May 2017

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Tax Reliefs including R&D

Software development is sometimes overlooked for R&D tax relief purposes, especially where a company undertakes one project, such as implementing a new system. Many of these and many activities qualify for R&D tax relief, however they are typically not claimed as there’s a misconception that their activities will not qualify. Research and Development (R&D) tax relief is a great way to reduce your software company’s tax liability or, in some cases, allow you to obtain a cash repayment - the R&D tax credit.

How you’ll get your R&D tax relief or tax credit

If you’re just claiming relief, this will reduce your software companies profit chargeable to CT for the relevant accounting period. If you’ve chosen to give up your enhanced relief to receive tax credits instead , HMRC will make the payment after they receive your return.

The way software companies can claim tax relief also depends on the size of the company:

the Small or Medium-sized Enterprise (SME) Scheme
the Large Company Scheme

Software costs that qualify for R&D tax relief

To qualify as R&D, any activity needs to meet the definitions set out by the Department for Business, Innovation and Skills. Below are a few examples of activities that will most likely be agreed with HMRC:

Improvements to an existing system
Creating new security techniques
Certain bug fixes
Creating new search engines
Developing a new O/S
Creating bespoke software for businesses
Synchronisation of two different systems such as your system with a client’s system
Improving computer game graphics.

Further information for Software developers

The normal time limit for making your claim is 2 years after the end of the relevant CT accounting period. If your claim is for within this date range then please contact one of our tax specialists in Scunthorpe for further information or a no obligation meeting to discuss R&D tax relief opportunities. We will assist with identifying tax-allowable R&D expenditure, necessary calculations, and submit appropriate claims to HMRC on your behalf.