If your business carries out software-based research and development (R&D) activity, you may be eligible to claim tax credit. The tax claim process can be complex but if you understand how the system works, you can take appropriate steps to maximise the amount you can claim.
So how can you make the most of your software R&D activity? After all, successfully claiming tax credits can have a positive impact on your business, not just financial, but in its productivity and valuation.
HMRC wants to reward businesses that demonstrate an advance in overall knowledge or capability, not just your own company’s advancement. This involves overcoming scientific or technological uncertainty; the introduction of new software capabilities that can, for instance, improve the speed of a system; or it could involve improvement to an existing product or system.
To achieve this, you’ll need a number of resources, many of which can be claimed for, such as:
Direct staff costs: these include salaries, wages, pension contributions, employer’s national insurance contributions and any benefits that you offer.
Externally provided R&D staff: you can claim tax credits for work performed by a 3rd party working on your behalf, though special rules will apply if the two companies are connected.
Software directly used on the R&D: it’s vital you focus on what is directly used on the R&D project - anything that cannot be clearly identified, such as server costs, cannot be claimed for.
Planning for a software project: planning activities such as outlining, estimating, and scheduling and planning for R&D elements of your project is claimable, however planning associated with non-R&D elements of the project such as financials, its marketing and legal aspects is not claimable.
How to claim
You can claim R&D tax credits through your company’s corporate tax return (CT600) at the end of your accounting period. However, it’s not as simple as entering a few extra numbers on the form. Instead, HMRC wants businesses to provide all the necessary information that supports the claim, including a technical narrative. The narrative is where HMRC needs to be able to see how the improvements to the software were made, which problems were faced, and how they were overcome.
What to do after a successful claim
You really begin to maximise a claim when you reinvest the money recuperated into recruitment of more technical expertise and further R&D.
With greater resources, your company can try new approaches and take greater commercial risks in testing and learning. After all, further innovation and business growth leads to industry development and, ultimately, growth to the wider UK economy.
If you want to be certain that you’re claiming for all the eligible parts of your R&D spend, talk to us on 0114 230 8401 or email firstname.lastname@example.org