Software Development R&D Tax Credits
Software development is a hugely important and dynamic industry, and with the advances being made across a range of businesses, the UK government’s R&D Tax Credit scheme can be a useful source of income for companies who invest time and resources into developing new software uses.
Many companies are currently missing out on this opportunity, as they are either not aware of the scheme or do not believe their industry or projects qualify. By its nature software development is innovative and constantly advancing, and many companies may undertake eligible projects regardless of the industry they work in.
Many ‘off-the-shelf’ options for data architecture and databasing do not suit the specific needs many businesses demand and many see it a viable solution to develop bespoke systems.
As with any R&D Tax claim it is vital to undergo the necessary assessment of what will qualify. This is even more important when claiming for a software based project. In response to perceived ambiguity in the sector, HMRC have created a committee to specifically address the guidance and requirements for software development tax claims. Some general projects that may qualify your business include:
With this in mind, it’s more important than ever to get your claim right, and with Cutts & Co you’ll find a team of accountants ready to help you understand the scheme, how you may qualify, what you can claim and offer guidance throughout the claim process.
Put simply, R&D tax credits are an incentive paid out to businesses for qualifying R&D projects and often act as a key source of income for many businesses.
The reward for businesses can be accessed either as a tax bill reduction or for loss making companies, a cash payout. It consists of two schemes – one for smaller businesses, SME R&D Relief, and one for larger businesses, RDEC.
HMRC applies stringent rules for eligibility and what costs can be covered, although many businesses could be missing out on credits.
R&D tax credits are open to any business, regardless of the sector you work in or if you do not typically undertake R&D projects. The business must be a limited company, have undertaken qualifying R&D projects and have spent money on those projects.
For businesses applying for SME Relief:
- A SME with fewer than 500 staff
- And either less than €100m total turnover or less than €86m gross
Other businesses who fall outside of these guidelines might claim for Research & Development Expenditure Credits (RDEC). These credits have replaced the large company scheme, and may be claimed by SMEs who have completed work whilst contracted to a larger company.
The range of costs you’ll be able to claim against are also fairly broad, and include*:
- Staff costs, including salaries, NI contributions and pension contributions
- Subcontractor and freelancer costs
- Costs of software related to your project
- Costs of materials and utilities used in the R&D process
- Clinical trial payments in the pharmaceutical industry
*All qualifying costs subject to HMRC standards
For SMEs applying for SME Relief:
- An extra 86% deduction of qualifying costs
- If loss making, 10% of the surrenderable loss as a tax credit
For businesses applying for RDEC:
- 20% of you R&D costs as a tax deduction