What projects qualify for R&D tax credits in software?

R&D for software development 


The information technology sector has been one of the biggest winners from the Government’s financial support scheme for science and technology research.

In 2016-17, more than a quarter of the claims for research and development tax credits – the system through which the government reimburses businesses some of the money they’ve spent on research – came from companies in the information and communications sector.  

It makes sense – the scheme is there to encourage innovation in science and technology, and the IT sector is at the forefront of this. So what sort of projects might be eligible for support?

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Eligibility for the scheme

The key to being eligible for r and d tax credits is that your company is trying to make advances in computer science or technology that will benefit society at large, not just your business. So you can’t just be making tweaks to a product or process – you must be doing something new, which you weren’t sure could be done, and which makes a tangible improvement to technological knowledge or capability in general.

Eligible work could include developing software, programming languages, database engines, operating systems or data management systems; or advancing cloud technology, artificial intelligence, robotics, virtual reality or smart devices. Even work on computer games can sometimes qualify if it is technologically innovative.

As the government says in its official guidance: “The ICT sector is so fast-moving that further advances overtake new and groundbreaking developments very quickly. What is important is that a project represents an advance at the time of development. New encryption and security techniques are being developed regularly and in many cases give rise to further advances. Even if the technique is quickly rendered redundant it will probably qualify for relief. The same applies to new search engines using new search methods.”

Because you are doing something you weren’t sure could be done, it doesn’t matter if your efforts don’t succeed or don’t make a profit. The government adds: “What matters is the technological input, rather than the commercial output.”  It suggests comparing what you’re developing with other software at the forefront of that area – if you’ve done, or tried to do, something that it can’t, you may well be onto something.

As well as software research and development for its own sake, software created or significantly adapted specifically for research and development in another scientific or technological sector would also count – for example, data handling software created for a medical research project.

What costs can I claim?

You can claim a proportion of the salaries, national insurance contributions and pension contributions of people working on the research and development project, including supervisors. You may be able to claim for a proportion of the cost of subcontractors too, as well as for the cost of materials, software and utility bills.

Claims often amount to tens or even hundreds of thousands of pounds. In 2016-17, information and communications businesses made more than 10,200 claims, totalling around £685 million. In fact, it was the sector with the highest number of claims and the second highest claims value (manufacturing was the highest). This r&d tax credits calculator can give you an idea of how much you might be able to claim.


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