When it comes to R&D Tax Relief, software development is one area which has historically been challenging for both companies and advisers.
Identifying whether a project qualified for relief could be difficult. Whilst it is easy sometimes to overlook “the other side of the fence”, these types of claims also caused difficulties for HMRC staff.
This resulted in those dealing with R&D claims within HMRC turning to their own IT experts.
This lead to HMRC forming a software development subcommittee to review the guidance in detail. At the end of 2018, new guidance was issued. The new guidance (CIRD81960) is far more detailed and should be easier to understand and apply.
Software Developing & The Old Guidance
Previously, the guidance had only given limited examples of software development projects which were quite black and white and at the opposite ends of the eligibility spectrum i.e. some obviously qualifying examples, such as developing a new semantic language and some obviously non-qualifying examples, such as using an off-the-shelf software package to develop a bespoke website.
However, it did not deal with the projects which arise in the real world which are usually in the middle ground.
Software Developing & The New Guidance
The new guidance attempts to address these real-life situations and links common scenarios in software development with the relevant areas of the R&D definition to help establish if a project qualifies.
The revised guidance also helpfully lists the sorts of questions to ask when considering whether the project meets the criteria for example: What is the baseline technology that any advance is being measured against? What technological changes have led to the new technological advance, or attempted advance?
The guidance also considers another area which is also difficult in practice- project boundaries. It considers the steps commonly involved in a software development project and which parts will be qualifying and which will not. This again should provide very helpful going forward with a research and development tax relief claim.
Get in touch —> ETC Tax have experience working with R & D tax relief claims for software development companies large and small. If your company is involved in development and you are unsure if you qualify for R&D Tax Relief, please get in touch with me Sharon Collier.
You can also read more about R&D Tax Reliefs below.