Software is now a ubiquitous feature of all industries. It’s almost easier to think of areas without a software component. Whether you are an IT department or company, HMRC’s new guidance for making software development R&D claims is worth a read.

Innovation in software development

There are so many new innovations constantly evolving in software development, that it feels like some information almost instantly goes out of date. The Internet of Things (IOT), Financial Technology (FinTech), Internet of Everything (IOE) and the Industrial Internet of Things (IIOT) are all driven by the software that enables their interconnectivity. Products and services for both the B2B and B2C markets that are connected is set to multiply exponentially.

This means that their software must be instantly compatible and be able to absorb continuous updates. Everything needs to be connectable to the next thing and even have the potential to link to the higher end of technological advances, like augmented reality.

Why the new software R&D Tax Credit claim guidance now?

HMRC acknowledge that the previous software R&D Tax Credit claim guidance was far too general and is now simply out of date. This does not help businesses to understand the potential of the R&D Tax Credit system. Considering that 65% of most R&D Tax Credit claims are for software expenditure, it really is time for an upgrade on their guidance. It is also worth pointing out the Information and Communication sector make 28% of all SME R&D Tax Credit claims.

It is also to help HMRC, as they are finding that they are not receiving the correct evidence from claimants to support their claim.

Who wrote this new guidance?

HMRC have a group of R&D tax specialists, who wrote this new guidance. They were supported by the expertise of a subcommittee of their R&D Consultative Committee and a digital; information officer from their Chief Technology Office.

Is the definition of a software R&D Tax Credit claim changing?

No, the purpose of the guidance is not to alter the definition of a software R&D Tax Credit claim, but to make it clearer.

How is the guidance useful to me?

In order to provide more useful examples, the ones in the new guidance contain much more detail. There is clarification about what HMRC considers a ‘commercial project’ and an ‘R&D project’ (software specific). This is an important distinction for your claim, as only the costs involved in an R&D project are eligible to claim.

The idea of the guidance is that you will be able to see how you can claim for your project more clearly and that you know exactly what evidence you will need to support that claim.

Main takeaways

  • Use your ‘technical professional’ at the research end of your project to ratify your information. In software projects, this is normally a lead developer.
  • Make the focus of your project, and claim, the technological development and advancement you are making. As opposed to the actual software you are creating as your end product or process.

Hopefully, this guidance will meet its aims and encourage more companies to make an R&D Tax Credit claim that includes all of the software elements they are entitled to. Look out for our next blog article which looks at the innovations in specific software areas that qualify for R&D Tax Credits. In the meantime, give us a shout with any questions you have about HMRC’s new guidance or making your R&D tax relief claim.


Darren Moynan