R&D Tax Credits for Software Development

R&D Tax Credits for software development is an area that many companies find confusing - here is an example of a question we have been asked several times.

"I have a client who have been developing in the cloud business management software which is an integrated suite of products covering web site hosting and development, e commerce trading, CRM, project management, accounting and all back office administrations.  At the micro level there is little other integrated software doing this role, and what there is is not as efficient.

Clearly there are other which do parts of this as separate modules, such as CRM, Accounting etc, but not all in one easy to use integrated system. The main costs have been the salary costs of a couple of people over the past five years plus some support IT costs.

Do you think a project such as this would qualify for R&D relief and how far back do you think we can go?"

Answer:

Software development qualifies like any other field of science or technology, providing it meets the criteria of attempting a technological advance through the resolution of technological uncertainty.

The test of whether or not the project will qualify is therefire not based on the features and functionality, but on the technical characteristics that make up the system. This is because with software, you can have two software packages, which may look identical to the end user, but one of which requires R&D and one of which does not. The differences may only become apparent when trying to scale the software up, using it under heavy load or integrate it with other packages. Therefore, it always requires a conversation with the technical people to determine if the work will qualify.

In terms of time limits, there are two areas to consider. The first is the boundaries of the R&D project itself under the legislation which is from the point that the technological uncertainty begins to be resolved, until it is actually resolved. The second is that as the scheme works through the UK CT system, there is a two year time limit on claims.

Finally, support IT costs may in some cases qualify as Qualifying Indirect Activities which can be included in a claim.