Make sure your R&D Tax Credit claims hit the spot

HMRC goalposts have recently moved as Software R&D projects that were previously considered to meet HMRC R&D Tax Credit guidelines may not now qualify because ‘technological capability has increased over time’.

HMRC caseworkers will now be supported by HMRC’s own computer specialists in relation to assessing the eligibility of the claimed R&D.

This means that claims must now better explain and articulate:

  • the advance sought
  • the technological uncertainties faced
  • and what prevented these from being readily deduced

Of the R&D Tax Credit 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.

This is now beginning to change 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.

In software, the advance is not usually implicit in the product – it comes from the technology layer. It is the science of technology that had to be advanced in order to develop the application that establishes eligibility as R&D.

Identifying the types of software projects that can qualify for R&D Tax Credits and the activities that can be included in a claim requires in-depth knowledge and understanding of software technology and trends and the R&D Tax Credit rule book.

This knowledge needs to be continually updated – which is why using a specialist like MSC R&D makes sense.

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 and where we were able to deliver additional value.

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