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.