R&D Tax Credit Software Development

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Finding R&D tax credit options for your company can be difficult. Like any software development project, you need to focus on a lot more than just the costs, and adapting to brand new software means planning very far ahead.

It is also a very bad idea to approach tax credit claim software projects without tax specialists backing you up. Software development is not just a technological challenge but a challenge of your understanding of tax laws and finding ways to reduce your expenses before you drain your budget.

When you take on innovative projects, a lot of technological uncertainty exists – but there are also budget limits to consider. We can help you find tax credit claims that can offer tax relief for taking on certain software projects or employing novel data management techniques.

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R&D Tax Credit Software Development

Check out some RD Tax Claims that you may be entitled to

Avg customer claim
£99,702
Highest RD Tax Claim
£1.4m
Total Value Of RD Tax Claims
£90m

Why TaxBite?

We have provided hundreds of UK companies with our expertise on R&D tax credits, enabling them to take on software development projects far above criteria and budget limits that they could ordinarily meet. We are able to help even the smallest companies find software development claims that can earn them some tax relief and keep their budget on track.

All of our past work has involved us helping software developers get the tax credit claim they deserve. We can help you work out if your software activities qualify, highlight qualifying costs, guide further investment and help you take advantage of tax incentives related to your software projects.

R&D Tax Credit Software Development
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Do your software development projects qualify for the R&D Tax Credits scheme?

Alongside the technological uncertainty of taking on a new project, there is also the uncertainty of funding and tax relief. Knowing if your company qualifies for R&D tax credits can be difficult without experienced professionals guiding your tax claims.

Your software development activities generally qualify if they use innovative methods or embrace technological (not system) uncertainty. For example, going beyond your normal technical expertise (and making a technological advance that does not just re-create an existing product) will count as a qualifying project.

R&D Tax Credits for software development explained

Research and development (R&D) tax credits are a kind of tax credit claim used as an incentive to innovate. These R&D tax credits are given out to companies that push for groundbreaking software development projects or take on a distinct scientific or technological challenge.

These R&D tax credits can either come as a cash payment or a corporation tax reduction. They are an incentive to overcome uncertainty and act as support for hiring more software specialists or buying more software and development tools.

These R&D tax credits exist in every sector and industry. Whether you are creating shipping database software, customer data cloud software or operating system tools, and you can get R&D tax credits if you qualify.

Is your software project eligible for a R&D claim?

To qualify for R&D tax credits, you need to be aiming to create advanced technologies or systems within your industry. This often means a software development project that pushes the boundaries of what other companies in your industry have created.

For example, creating a specialised operating system that surpasses pre-installed operating systems would make you eligible. So would creating ground breaking software development tools or programming languages. However, creating an optimised version of an existing software product may not.

Reasons to claim R&D tax credits for software development

Even if your business can continue to operate without the R&D tax credits, it is still a good idea to claim this tax relief. The reduction in corporation tax and/or the sudden influx of new cash can provide:

Sustainable Growth

Tax relief for your software development project allows you to keep pushing deeper into scientific or technological uncertainty without draining your budget. Many of these projects can establish a new equilibrium for your business once completed.

For example, developing new data structures that would allow for faster data processing can be expensive, but reduced tax may give you the edge you need to finish the project. When it is finished, the added speed may allow you to operate with lower costs.

Innovative Culture

Taking the lead in innovation for your software sector is not easy. However, once you get the ball rolling, it is easy to keep that innovative momentum moving. R&D tax provides a safety net for companies that constantly face scientific or technological uncertainty in each software project they take on.

Competitive Edge

Software development can be a great way to gain an edge, and having extra funding or support for an innovative software project can make achieving that edge even more viable. Avoiding financial risk while getting a competitive advantage is an appealing idea to every company.

Quicker time-to-market for software projects

Many software applications are made to match time-sensitive factors, like high customer demand for certain tools. If technological uncertainty starts to delay your project, R&D tax credits can alleviate the wait and allow you to get the project finished sooner.

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How to Calculate your software development claim & what to include

There are multiple factors that go into R&D tax credits calculations, and all of them will influence how much software development support you receive.

Staff Costs

Whether you rely on agency workers or full-time employees, the cost of having your business employ a new expert can impact what you get. This is often important for dealing with technical uncertainties that your existing employees are not equipped to deal with.

Software costs

You often need new tools to make your own software. Whether it is getting third-party software components or entirely new tools to help with software development, your R&D tax is often meant to cover these purchases so that you can continue your developments in peace.

Time spent on the project

The longer a project lasts, the more R&D tax credits you will need, but you can’t always get complete support throughout the whole project. However, the length (or estimated duration) of your project is still going to influence your software development claim options.

Expenditures funding the project

Another major factor in any software development project is funding. Having more sources of funding available is an important factor in getting the work done on time and within your budget, so covering important expenses with R&D tax credit can make a huge difference.

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Misconceptions around software R&D tax credit claims

Many people misunderstand how R&D tax credit works, often to their own detriment. There are a lot of cases where you can claim it despite not feeling like you should qualify, and others where you might not fully understand what actually counts as an innovative project.

Only new software qualifies

The only requirement for software to qualify is that it actually meets the criteria for being innovative – and that it is in active development. If you have been working on new object representations for a year, you can still claim R&D tax credit as long as development is ongoing.

Part of the project was not R&D

R&D tax credit is not just for the R&D stage, despite the name. This also means that the project does not have to be pure R&D – the credit you get will be based on the R&D work, but the project can be a mixture of processes and tasks.

We were not taking a financial risk

Financial risk is not actually a requirement for these tax breaks. What matters is that you are doing innovative work – the government wants to provide an incentive to push for more innovation, even among companies with enough money to fund themselves.

We used subcontractors, and they do not qualify

The only important factor with these tax credits is that you are doing something innovative rather than just refining or remaking an existing process. Subcontractors are just another tool in your arsenal that you can use to push for faster development, even if they themselves do not qualify.

Capitalising software expenditure does not have an impact on my R&D tax credit claims

While capitalising your software expenditures is going to influence the credit claim amount, it does not stop you from getting those tax credits. This goes for any accounting tricks or techniques – as long as they do not interfere with development.

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How can we help with your software R&D Tax Credits claim?

We at TaxBite can guide you towards the best possible circumstances for claiming R&D tax credits, whatever that means for your business. Our expertise allows us to push for better credit claim value amounts, and we can help you take advantage of any tricks or factors that you have not already touched yourself.

A huge part of making any R&D tax credit claim is understanding how you can optimize it to suit your business. Looking at your balance sheet is not always enough, and we have the expertise necessary to help you get the best amount of credit possible for your chosen project.

Tax is a very difficult subject that requires a lot of time to understand. We can have a competent professional working alongside you in no time at all, offering carefully-crafted advice on how to approach and secure these tax benefits.

Frequently Asked RD Tax Questions

How much are software R&D tax credits worth?

The overall worth of your credits depends on how much you have invested, as well as the total length and scale of the project they are for. This means that it is hard to pin down an exact value, even if you understand the exact details behind your usual UK corporation tax payments.
We at TaxBite can help you handle this kind of information effectively, giving you a complete breakdown of what to expect and how your credit lines up with the rest of your finances and tax information.

What is scientific or technological uncertainty?

A huge factor in getting your credit is the amount of uncertainty involved. If you are not sure whether or not a software project is going to pay off and give usable results, then turning to these incentives can be a vital way to minimise the damage to your company finances.
A lot of innovative projects require stepping outside of normal boundaries and pushing for goals that might not succeed. These incentives support and reward customers who refuse to stay within their safety nets, extending more protection to them for taking risks.

What can’t you claim for in software R&D?

You can’t claim for things that do not advance the market, computer science, technological standards or any other area of your industry.

For example, you may be able to claim for user acceptance testing or hiring a competent professional to design a new one-of-a-kind database system that will revolutionise your industry. However, you could not claim if you were simply redesigning the interface of a program that already exists.

Can you Claim RD Tax for subcontracted development?

You can claim 65% of any relevant costs if you use a subcontractor in your R&D work. This means that you can still receive support even if you outsource and subcontract a lot of the development.

What costs that you can include in your RD tax credits claim?

Your tax credits can cover a range of costs, from company pension contributions and reimbursed expenses to salaries and employer NICs. All of these need to be taken into account when you are looking at R&D credit for tax purposes.

Who qualifies for software development R&D tax relief?

To qualify for software development R&D tax, you need to be researching and developing something innovative and unique. This could be entire operating systems, ways to port data between devices, image processing tools, or even just specialised apps for mobile phones.

The only shared link is that you are doing something innovative and truly distinct. You could be in the communication sector, the wider software industry, the accounting sector or even just an independent business focusing on multiple industries at once.

Does your business qualify?

Figuring out if your business qualifies can be tough at first. Really, as long as you are creating something innovative, you will qualify – even if you do not have any eligible expenditure to cover, and the project would not put you at financial risk.

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If you want to take advantage of these R&D credits for yourself, then you need an expert on-hand that can help you use them effectively. We can offer all of the skills and experience you will need to take advantage of these government incentives, no matter how complex they might seem.

Do not hesitate to get in touch and talk with us about what you are looking for. If you are developing software, then you will want to make sure that you have every possible bonus and benefit on your side – something that we are experienced at making possible.

These incentives exist for a reason, and there are very few reasons not to claim them if they are available. Contact us and talk with our experts to get a full overview of what to expect, how these credits work, and what we can do to ensure that you get the best possible R&D tax credit benefits for your software development project.

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