21ST JUNE, 2019

Does Your Software Company Qualify For R&D Tax Credits?

We are on the cusp of a technological avalanche, where artificial intelligence and augmented reality are starting to become a part of our daily lives. For this reason, software development is one of the biggest areas for which you can claim R&D Tax Credits. 

Revenue has singled out software development as needing extra guidance as the industry is so fast-moving it can be difficult to identify R&D compared to the medical sector, for example.

What are R&D Tax Credits?

Overcoming difficulty in a project which provides an advance for your industry is the basic requirement for this government scheme. It can be claimed on many different types of projects, like those which improve an existing process, product or service and even those which have tried to do the aforementioned but failed. Even small companies who have been subcontracted can claim, even if the overall project doesn't qualify. You can claim R&D Tax Credits up to two years after the accounting period closes.

How does this apply to software development?

The software industry is constantly moving, which makes the industry highly susceptible to many forms of innovation and research and development. 

A project which is quickly made redundant due to the innovative nature of the sector can still be claimed upon. However, it is equally difficult as most advances in the field are incremental. Furthermore, even if the project is innovative, it needs to adhere to the five qualifying criteria.

  1. Are the activities systematic, investigative or experimental?
  2. Are the activities being carried out in an approved field of science or technology?
  3. Do the activities achieve Revenue’s definition of R&D?
  4. Does the company seek a technological or scientific advance?
  5. Do the activities resolve a technological or scientific uncertainty?

Usually, R&D is found in the search for new architecture techniques or software constructs, taking place at the algorithmic, design or architectural level. The customisation of software to a company’s needs is not enough to qualify; the project must make a technological advance for the field. The key to working out if your project would qualify is proving that an industry professional could not easily deduce your method.

There are many parts of the process which can be claimed for:

  • Planning – outlining and estimating for the R&D elements in your project will qualify.
  • Analysis, design and development – activity relating to the R&D activity will qualify.
  • Testing – as long as the tests aid development, they qualify. Confirmatory tests after or during the project is completed will not qualify.
  • Maintenance – in general, maintenance activity does not qualify, unless new problems emerge which require R&D.

Common projects include translating models into code, ensuring applications/process will function in different environments, developing internet security or advanced mathematical programming.

Final Thoughts

Software development is a key sector for R&D Tax Credits as it is innovative by nature. The fast pace of the field ensures R&D is always occurring. If your company can prove your project has found an advance in technology to the benefit of the industry, then you may be entitled to R&D Tax Credits. However, if you are unsure, feel free to give us a call and we can confirm if you are likely to be eligible.

 

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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