R&D Tax credits for the software industry
The UK’s software industry is thriving, with new innovations coming to the fore on a regular basis. Whether it’s a new programme, an improved algorithm, or an advance in working practices, many companies are engaged in research and development activity, and are therefore eligible for R&D tax credits. But many businesses are missing out on these, either through a lack of awareness about the scheme or because they’re unsure whether their work qualifies.
Taking advantage of R&D tax credits
The government’s definition of qualifying activity is intentionally broad, ensuring as many innovations as possible can benefit from the available relief. A number of associated costs can form part of your claim, from staff wages and pension contributions to utilities and consumables. The average claim value in the software industry is estimated to be at least £60,000 – so if you think you’re eligible, it’s certainly worth talking to a tax specialist.
The following projects are an example of what can be claimed for under the scheme:
- Developing communications systems for online transaction processing
- Developing a unique CRM system to accommodate processes or information hitherto uncatered for
- Developing applications to integrate with in-house systems
- Finding innovative ways to protect consumer data
- Creating software for new hardware systems
The criteria for a claim is that the activity should seek to overcome a challenge using scientific or technological knowhow. The challenge must be such that another professional in the field cannot easily find a solution, and must have the potential to benefit the industry as a whole, as opposed to simply the company’s bottom line.
What you can expect to receive
The remuneration your business receives depends on the scheme under which you are claiming. For claims under the SME scheme, you can deduct a further 130% of your qualifying costs from your yearly profit in addition to the normal 100% deduction. That means a total 230% deduction from your Corporation Tax bill. The RDEC scheme, for companies with over 500 employees or an annual turnover of more than €100 million, entitles you to 12% of your qualifying expenditure as a reduction in your Corporation Tax bill.
Even loss-making companies are entitled to make a claim, since the reward is for costs spent on innovative endeavours, not for the success of the project or the profits turned.
Making a claim
With the potential for a cash injection of thousands of pounds, software companies shouldn’t ignore the opportunity to make a claim. Indeed, in many cases the awarded money enables companies to hire further staff, buy better equipment, or simply continue with their research and development activity.
For information on R&D tax solutions, or to look into making a claim for your software development activity, speak to a professional R&D tax specialist today. They can assess the potential for a successful claim, help you to gather the necessary records and documents, liaise with HMRC on your behalf, and ensure the submitted claim is accurate and maximises the award you receive. You may find your balance sheet looking much healthier.