What is R&D?
Research & Development (R&D) tax relief is awarded to businesses that invest in innovation, usually in the form of developing new systems, processes, products, materials, devices, or any changes to the way a business works.
Despite being available in the UK since 2000, it is still largely under-claimed. The latest statistics released from HMRC in October 2019 show that despite the abundance of innovation being carried out by businesses, only around 52,000 R&D claims were made in 2016-17. This is around 0.9% of the total number of SME businesses in the UK.
The UK government is also looking to increase R&D expenditure as a % of GDP over the next decade from 1.7% in 2016 to 2.4% in 2027, so there is an awful lot of focus on ensuring companies are continuing to invest in, and be given the appropriate reliefs for developing new innovations within their sector.
What types of R&D can you claim for in the Software Development industry?
One of the most common reasons for not claiming is lack of awareness – many businesses are unaware that they are eligible for R&D tax relief. HMRC was careful to define R&D in such a way it could apply to varied work across multiple industries – the idea was to turbocharge innovation across every sector.
In our modern world, software development is at the forefront of many business’ innovation. If your company is involved in software development, there’s a high chance you’ll be eligible to make an R&D claim.
It’s worth noting that the ‘software development’ does not relate to an off the shelf system or simply a ‘bespoke’ system, but rather the development of software for a specific purpose. An example of something that would not be eligible for R&D tax relief is Salesforce.
Salesforce is an online product which allows businesses to track information about their prospects and clients. It enables different areas of a business to have a unified view of the client, giving opportunity for a better overall client experience, as well as providing useful insight for future marketing and sales campaigns.
Salesforce is an ‘off the shelf’ product but is generally ‘bespoked’ dependent on the individual business needs. This means that any business using a bespoke Salesforce platform is not eligible for R&D tax relief.
Note that when putting forward a software claim, the functionality of the software is not the focus, but rather the underlying technology which makes this functionality possible. This underlying technology must attempt to or go above and beyond the current software industry standard and must have faced technological or scientific hurdles during its development.
Some other things that can be claimed for include, but are not limited to:
We recently worked with a client who provides testing for contact and contactless EMV terminals.
The terminals used for payment need the highest security ensured, while maintaining the flexibility to allow the programme to communicate across required platforms. Research conducted on the coding languages and software platforms involved has resulted in the development of a highly secure and agile software program that runs testing and calibration within a protected and isolated environment utilising simple hardware.
This particular client initially completed their own R&D claim, which resulted in circa £100k in benefit. On the recommendation of their accountant, they approached us to review their projects. We were able to dig deeper into their activity and uncovered a further £100k for each claim year, totally over £200k in benefit to date.
How Catax can help
The average claims that Catax see for this particular form of tax relief is in excess of £59,000, so absolutely worth finding out if your business could make a claim. We operate on a contingency basis so if there is no claim it will cost you nothing.
We have a dedicated R&D team who work on claims all day every day – there is very little they haven’t seen before! This makes them best placed to deal with your claim and ensure the best possible results.
Speak to us today to find out if you could make a claim.