R&D Tax Credits for Software Development Companies

Can software companies claim R&D tax relief?

The government’s R&D tax credits scheme rewards businesses committing time and resources to innovation. Software development companies are ideal candidates for support under the scheme and can benefit significantly from making a claim. The incentives under the scheme can allow software development companies to fuel growth and further innovation, making it a smart choice to move the business forward.

How do R&D tax credits work for software development companies?

The R&D tax credits scheme rewards businesses that are pushing into fields such as technology and seeking to tackle uncertainties, taking risks to solve technological challenges. There are many different areas that any software development company might be involved in that could count as qualifying activities.. These include AI and machine learning, data processing and storage, IoT, cloud computing, robotics and augmented reality. R&D tax credits reward many different types of businesses involved in software development, from those supporting other businesses in their software projects to enterprises providing Software as a Service (SaaS) and companies involved in bespoke software development projects.

Qualifying software development activities

Software development activities likely to qualify will seek to advance overall knowledge or capacity in the field, not just the knowledge and capacity of the individual business. Here are three examples of projects that could fall within the scope of R&D tax credits:

1. Software is being developed to tackle scientific or technological uncertainty, focusing on the difficulties and challenges that competent professionals in the field have yet to overcome. For this to succeed, the knowledge acquired must not simply have come from other freely available knowledge.
2. Creating new products or systems, such as new software capability to improve the speed of a system that integrates different technologies.
3. Improvements to existing systems, such as adapting bespoke systems for integration with new hardware or devices.

It’s important to emphasise that R&D tax credits aren’t designed to apply only to new software but also to improve existing software and overcome challenges. Plus, activities may still qualify even if part of the project has standard elements in it and isn’t R&D.

Expenditure that counts under R&D tax credits

Claims made under the scheme are based on specific expenditures to support innovation. This includes the direct costs of employing staff for the R&D project, as well as the cost of any externally provided staff. Expenditure on consumable items (such as energy) that have been part of the R&D process will also count. As do the costs associated with creating prototypes. Job roles, such as project managers, software engineers and senior management, could all be eligible for relief under the scheme.

R&D tax credits are ideally suited to software development companies and can generate significant rewards for investment in innovation. SPRK Capital are a leading provider of R&D tax credit loans, which advance the funding from your claim to you when needed.

Contact SPRK Capital today to apply for an R&D tax credit loan or to learn more about how we support innovation within UK businesses.