Software Development & R&D Tax Credits

Software Development is the basis for many R&D Tax Credit applications; with businesses fully embracing digitalisation and emerging technologies like AI becoming more commonplace, the number of software development projects is only expected to increase. However, there are still many misconceptions regarding what types of software development activity and expenditure qualifies for the relief.

The R&D incentive is broader than many realise when it comes to the activity that qualifies; HMRC’s guidance states that there must be an advance in science and technology in the field of software development, not just in the company’s own knowledge.

But what does that actually mean? Some common examples of qualifying software development activity include;

  • Programming a new platform with bespoke functionality (such as an ERP, CRM or WMS)
  • Developing a website with unique technical functionality (such as a novel customer portal)
  • Enhancing an existing platform to develop new features
  • Integrating existing platforms that do not natively integrate in their off-the-shelf state
  • Programming novel toolkits or development tools
  • Developing cyber security toolkits and exploits

Although the criteria for qualifying software development activity are broad, not all programming is considered qualifying activity under the R&D incentive. Programming that does not advance science and technology in the sector, or carry with it a degree of technical uncertainty, does not qualify for R&D Tax Credits. Some examples of software development that would not qualify for R&D Tax Credits can be found below;

  • Routine programming and bug fixing in which the outcome is clear
  • Routine optimisation of programming
  • The use of software, such as WordPress, to create basic websites
  • Enhancements solely related to aesthetics (such as graphic design)

The development of video games is also not eligible under the R&D Tax Credit incentive. Instead, support for these developments is provided through the Video Game Tax Credits incentive. Certain costs associated with developing a video game, such as the programming of the game itself, voice acting and motion capture can be recovered through this incentive, if the game fulfils the necessary qualification criteria and passes the cultural test.

The many nuances of R&D Tax Credit applications for software development activity cannot be covered in a single article, so keep an eye out for future updates from us that will provide more detail.

As always, if you’re ever unsure whether an activity, or expenditure, is eligible for R&D Tax Credits relief, or if you just want to know more, get in touch using the enquiry form below, or you can find the email addresses for various members of our team on the team page.  

Engineering: Maximising your R&D Application

It is no surprise that the engineering sector is one of the most widely claimed industries for R&D tax credits; whereas many sectors are unaware of the incentive or wrongly believe they do not qualify, many established engineering firms are familiar with the benefits of the R&D mechanism.

However, while lots of organisations in the engineering sector are recovering their costs through the incentive, their recovery is often a fraction of what they are entitled to. 

From our experience, we’ve found companies in the sector are identifying “obvious” R&D expenditure, such as staff costs and material costs, but many less obvious costs are erroneously excluded.

Also, in many instances, applications are submitted without a supporting report detailing the R&D activity. While it is not a requirement from HMRC to provide this supporting information (unless the application is queried), submitting an R&D application without a report can expose the company and increase the likelihood of a query.

If you operate in the engineering sector, and are unsure whether you’re getting everything you’re entitled to, without exposing yourself, ask these questions;

  • Has what qualifies and what does not qualify been explained?
  • Do I have a robust technical report that details my activity?
  • Have I been guided through the process of identifying eligible expenditure?
  • Will the application be defended in the event of a query?
  • Do the costs I’m recovering seem reasonable in comparison to my R&D activity?

If any of these questions are answered with a no, you may not be benefitting from the full breadth of the R&D incentive. If this is the case, please do get in touch, one of the team would be more than happy to assist! 

Apogee Associates R&D Tax Credits

If you believe you are still leaving money on the table or would like a FREE review of your existing application, fill in the contact form below and one of our team will be in touch!

R&D Tax Credits in the Pet Sector

The UK’s pet sector has benefitted from consistent growth in recent years and is forecasted to continue to do so. Growth actually increased throughout Covid-19, due to a rise in pet ownership; the Pet Food Manufacturers Association (PFMA) confirmed 3.2 million UK households acquired a pet since the start of the pandemic, resulting in a total of 17 million pet owning homes throughout the country.

The increase in pet ownership has likewise increased the demand for pet products, including food, toys, medication and treats. Many UK companies operating in the sector have seen increased sales and growth, enabling them to dedicate more resource towards improving their products and processes through research and development. The sector’s growth has increased competition, making it important now more than ever to differentiate through innovation.

Like in many sectors, a surprising number of companies operating in the pet industry are conducting eligible R&D activity yet do not benefit from the incentive. This is partly due to unawareness of the incentive, but misconceptions regarding qualifying R&D activity are also to blame.

Some examples of R&D in the pet sector include;

  • Developing nutritious food/treats, especially “free-from” options
  • Developing toys, beds or accessories that achieve specific technical properties without compromising comfort (i.e. antibacterial)
  • Improving manufacturing processes by reducing waste, minimizing costs or increasing efficiency
  • Investing in sustainability; developing products or packaging using recycled or eco-friendly materials
  • Developing, modifying or integrating software to improve operations

If you operate in the pet sector and are unsure whether you’d be eligible for an R&D tax credit application get in touch! We are always happy to have an exploratory conversation to see if we can help.

R&D Tax Credits and CAD

R&D Tax Credits and CAD

When many people think of Computer Aided Design (CAD), 3D renderings of complex engineering prototypes come to mind. However, CAD software is extremely versatile and has changed the design process across countless industries for the better.

The introduction of CAD made in-house research and development feasible for many organisations that previously lacked the resources to dedicate towards it. This is in part due to the fact that it is no longer necessary to invest significant resource (in terms of both time and materials) in designing, prototyping and proofing physical concepts, as CAD enabled these activities to be accomplished in a virtual setting with no material cost.

While physical prototypes are often still necessary further down the development road, the ability to design and test ideas in a digital environment alleviates much of the cost associated with the creation of new products. Because of this, CAD software has provided many SMEs with the tools they need to innovate, without requiring substantial reserves or capital.

That brings us to the relationship between R&D tax credits and CAD. In many cases, costs associated with testing, and the development of both 2D and 3D designs, can be recovered through the R&D mechanism; the caveat being the nature of the CAD activity.

If you’re using CAD to develop bespoke 2D or 3D designs in which the optimum design is not immediately obvious, or where there is uncertainty as to whether a suitable design can be developed at all, you are likely eligible to recover your costs.

Additionally, if you’re testing potential designs in the software and regularly forced to iterate and modify their configuration as a result, you will find an R&D tax credit application incredibly worthwhile.

If your company uses CAD and you’re unsure whether you should be applying, or if you’re already submitting applications but believe there’s money being left on the table, get in touch with one of our team – as always, we would be happy to help.

R&D Tax Credits in the Printing Industry

R&D in the printing industry

The printing industry is subject to constant innovation, with improvements to efficiency, quality and sustainability all regularly contributing to sector-wide advancements in science and technology. Many of these advancements are achieved through daily business operations and are not seen as R&D projects by the company.

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