How to Claim R&D Tax Credits for Your Software Project

Many businesses are unaware that their next software development project may qualify for tax relief, considerably reducing the investment required from the organisation.

If you’re on the fence about investing in a new, bespoke project, improving current software, or adapting current software to new or different uses, you may be able to cut the cost of the work with R&D tax credits.

Think this might apply to you? Read more to find out…

What Are R&D Tax Credits?

The UK Government have recently reformed the R&D Tax Credits system to promote efficient use of public funds and bolster innovation. This is great for the Government, as it incentivises more leading-edge work, and great news for you as a pro-active business, or someone looking to plan an innovation project, as claiming these credits will significantly reduce the cost.

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Am I Eligible?

Eligibility for these credits can seem complex but is fairly simple in practice. The recent reform to the system aimed to cut down on those businesses abusing the relief, and better define eligibility.

Firstly, we must define what qualifies a Software Development project as R&D. The project must:

Overcome a Scientific or Technological Uncertainty

Is there a specific challenge the Software project is looking to overcome? Ultimately, if you’re seeking to justify the relief by these means, you must be able to identify a specific blocker in the technological input which your project seeks to mitigate or nullify.

Create a New Software Product or System

This could include building an entirely new system or product, or an integration of different systems or technologies which were not previously able to interoperate.

Improve an Existing Product or System

This cannot be just a re-configuration of a software product for business purposes. This must be an active improvement of the capability of a system that already exists. This means adding new features and capabilities to existing systems or adding interoperability to legacy technologies.

If you believe your project may fall under the above criteria, you may be eligible for an R&D tax relief. Get in touch to find out more.

What Types of Expenditure Can Be Claimed?

It’s important to understand exactly what you can claim against the tax credit to factor this against the total cost of your project. The types of expenditure you can claim are:

• Direct staff costs from the R&D project.
• Cost of any external staff involved in the project.
• Cost of consumables (Fuel, Electricity etc) which are used directly on the project.
• Any prototypes involved in testing the project.
• Subcontracted R&D with the SME and RDEC schemes.

It’s a common misconception that subcontracted work cannot be claimed under these schemes, but it is not at all the case. In fact, you can claim 65% of the costs paid to any subcontractor for qualifying activities.

What Should I Do Next?

This is a fantastic business incentive to grow and innovate, and claiming tax relief can make this process a more affordable and valuable investment. As a business with extensive experience in software development, as well as tax credit proposals and justifications, Netmatters are ideally placed to offer advice and support. Consider getting in touch with our teams in Norwich and Cambridge on 01603 704020 for a no-obligation chat, or fill out the form below.