The software industry in the UK is the sector that has started to really see the benefit of the HMRC’s Research and Development (R&D) tax credits with 65% of the claims being from the software industry. But given the volume of these claims, the HMRC have started to look at the software sector more closely and with a panel of industry experts, they have refined the guidance for the software industry.

What does this mean for the software industry?

Ultimately it does not greatly affect those that are developing new software as what it largely does is clarify what counts as qualifying for the R&D tax credits.

What many companies applying for R&D tax credits have come foul of is not focusing their application on the right aspects of their developments. Often the focus has been on the functionality of the software whereas the HMRC are really wanting to understand the technological advancement in order to successfully assess the claim. Therefore, it is important to correctly word any claim and clearly highlight what advancements have been made.

The reason why the software sector has been receiving such focus is that this area is continuously developing and changing which makes the identification of qualifying developments harder to distinguish from natural progression and what is a true advancement.

What does qualify?

All projects regardless of the industry must demonstrate that advancement in science or technology has been made that benefits more than just their own company. It has to advance industry knowledge; however, it is also possible to make a claim for a development that is similar to another company’s as long as their solution isn’t publicly known or available.

It also must demonstrate that there was uncertainty and that research, testing and analysis were required in order to develop it. To assist this, you must be able to demonstrate that an industry professional couldn’t easily have worked this out.

The HMRC has released a paper with some updated case study examples for the software industry that can help. And although the guidance and these case studies have gone some way in helping clarify what is eligible, it is still not as clear cut as many would like. This is why it is often best to engage a professional that can help identify qualifying actions and be able to present the evidence in a compelling manner to the HMRC.

Does this have any wider impacts beyond the software industry?

Although the recent guidance has focused on the software industry it is fair to expect that this will also apply to other industries claiming R&D tax credits as the same rules apply to all. It will also have a particular impact on the manufacturing industry as the other bigger claimant of R&D tax credits as they too have to demonstrate advancement and uncertainty.

Is it really worth the effort if it is so complex?

In one word yes!

Although all of this red tape and rules can be daunting there is significant tax relief that can be achieved from making a successful claim. And this is where we can help. TEQ Group’s technical specialists have a 100% successful claims record on R&D tax credit claims. We can identify the technological advancement and uncertainty in your developments and can present this evidence in a way that the HMRC can clearly see its eligibility. Plus we offer a free no obligation assessment so what is there to lose?

To find out more contact TEQ Group today on 01423 815299 or click the button below and we’ll be happy to offer some advice.


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