R&D Tax Credits & Software – Increased scrutiny in 2019

With the number of SMEs claiming R&D Tax Credits more than doubling between 2013-14 (15,585) and 2016-17 (34,060), and with an average claim value of c£54,000, it is clear that awareness of this attractive scheme and its benefits continues to increase, which is good news for the economy.

In a recent review of the R&D Tax Credit scheme, HMRC estimated that for every £1 awarded to innovative businesses via R&D Tax Credits, between £1.53 and £2.35 is stimulated in R&D expenditure.

Software

Of the claims made in 2016-17, over 10,000 were made by companies within the ICT sector.

Over the years HMRC have sometimes had difficulty in assessing the validity of software claims as qualifying R&D. This is because their caseworkers are not software professionals and it can be difficult for them to appreciate whether a claimed advance genuinely goes beyond current knowledge or capability in a particular field of software development. That can be particularly hard where the software in question is specific to the claimant company.

Some progress is being seen here, as HMRC caseworkers can now refer questions of difficulty to HMRC’s own IT professionals for guidance either to the current technology state of play, or to appropriate questions to ask, to flesh out the R&D aspects of the development.

In addition HMRC have published clarification on the characteristics of software development that falls within the published R&D definition at CIRD 81960. This addresses questions such as:

  • requirements gathering,
  • benchmarking R&D
  • R&D boundaries,
  • configuration versus customisation and
  • relevant testing,

The level of HMRC scrutiny of software claims is likely to increase and be better focused in future.

MSC R&D uses experienced IT professionals to prepare R&D Tax Credit claims for our clients – many of whom were previously making claims prior to working with us where we were able to deliver additional value.

Our claims process is fast, time efficient and in-depth, and our support is comprehensive.

Contact us on 0114 230 8401