R&D Tax Credits For Software Development

You build software and want tax relief, but the rules feel hard to follow. HMRC asks for proof you advanced knowledge and solved technical uncertainty, and many software projects miss out.

Research and development work in software, like AI, machine learning and cloud computing, often qualifies.

HMRC now accepts pure mathematics, and you can claim data and cloud computing costs as part of R&D tax credits for software development. R&D Tax Credit Specialists will show which software development activities qualify, which software development costs to claim, and how to make a robust software claim to HMRC.

Understanding R&D Tax Credits for Software Development

You can claim R&D tax relief for a software development project if it seeks an advance in technology and meets HM Revenue and Customs criteria. You must show technical uncertainty, keep accounting records and evidence, and link costs to your corporation tax claim.

Definition and Criteria for Qualifying Projects

You must aim for an advance in Science or Technology, beyond an internal improvement. The work must tackle scientific or technological uncertainty, as set out in BEIS guidelines paragraphs 6 and 13.

A recognised advance can be a significant improvement, certified by a competent professional in BEIS paragraphs 9 and 23.

HM Revenue and Customs require you to show the advancement goes beyond current knowledge or existing capability. Only parts of a software development project that focus on technological input, for example artificial intelligence, blockchain, cryptography, augmented reality, connected devices, software architecture and hardware, qualify for relief for software and r&d tax relief.

R&D begins when you start work to resolve the uncertainty. You end it when you resolve it or stop work. Keep clear evidence, dates and costs to claim r&d tax credits and to show qualifying r&d.

Eligible Software Development Activities

You can claim tax relief for software development when you solve clear technical problems in code, such as building prototypes, creating new algorithms, integrating APIs, or scaling apps for cloud platforms and Internet of Things devices—check if your software R&D projects qualify for R&D tax relief and read more.

Overcoming Technological Uncertainty

You must show scientific or technological uncertainty, such as building new data architectures, APIs or extending frameworks. BEIS guidance, paragraph 14, recognises system uncertainty caused by system complexity, including computer hardware and Internet of things integration.

The uncertainties must be genuine and not solvable by a competent professional, per BEIS paragraphs 20, 21 and 22.

Routine projects without technical challenges do not qualify for R&D relief. Keep records of the improvements you made, the problems you encountered, and the methods you used to resolve uncertainty.

R&D Tax Credit Specialists help you focus claims on feasibility and practical application, and strengthen a software development r&d tax claim to qualify for r&d tax relief.

Examples of Qualifying Software Projects

These examples show how you can claim R&D tax relief for software development.

• Machine learning, AI systems and new algorithm research that lift capability substantially, where it was uncertain whether software could be made, qualify as R&D. Claim costs for data handling, model training and testing.
• APIs that enable integration of previously incompatible systems, and platform bridges that solve technical uncertainty, qualify for R&D tax credits. You may include design, testing and integration invoices in your r&d tax claim.
• Augmented reality projects that build new rendering pipelines or sensor interfaces qualify. You may claim costs for prototype hardware, graphics optimisation and user testing.
• Software created or adapted solely for research, for example data handling for life sciences or experimental control systems, meets the first qualifying category. You must record use solely for R&D and claim staff and cloud expenditure.
• Testing and development of new workflow, content management, CRM, document or finance systems that face genuine technical barriers qualify. You may recover contractor fees and custom software expenditure within a tax relief claim.
• Internal software built primarily as the R&D goal, intended for licensing or sale, fits the second qualifying category. Record technical uncertainty clearly and include development expenditure evidence in your claim.
• Novel algorithms that drive large performance or scalability gains count as R&D when success was uncertain. Include costs for algorithm design, benchmarking and optimisation tools in an R&D claim.
• Projects integrating AI with legacy hardware or cloud platforms, using machine learning frameworks, container tools and cloud compute, qualify when work made success uncertain. You may list licences, infrastructure and compute bills as eligible r&d expenditure.
• R&D Tax Credit Specialists have helped over 1,500 clients claim more than £5 million in relief. You can ask them to assess whether your software project qualifies and to prepare a complete R&D claim.

The Role of R&D Tax Credit Specialists

You get expert help from R&D Tax Credit Specialists who use HMRC guidance and company accounts, and gather project logs, version control and unit tests to make a strong software R&D tax relief claim — read more.

Expertise in Navigating HMRC Requirements

You must cite HMRC Guidance for Compliance 3, GfC3, and DSIT guidelines in software R&D tax claims. An Additional Information Form, AIF, has been required for all claims submitted from 1 August 2023.

Know that HMRC now demands detailed supporting information, due to rapid change in the software sector and high contractor turnover.

You should prepare clear technical narratives, cost lists and timelines to make a claim that meets HMRC standards. Expect HMRC caseworkers to consult computer specialists to assess complex technical claims.

R&D Tax Credit Specialists work with engineers to gather evidence and submit strong R&D tax credit claims for software companies and small and medium enterprises.

Success Stories and Client Impact

See clear client wins. You will gain faster, larger tax reliefs.

• Large firms and start-ups with minimal revenue achieved successful R&D tax credit claims in the United Kingdom, we proved tax credits for software projects apply to eligible software development, you can access tax reliefs under the r&d tax credit scheme.
• An AI startup recovered £500,000 in credits last year, R&D Tax Credit Specialists documented qualifying r&d activity for machine learning systems, cloud platforms and information technology, you received the refund within months.
• Founded in 2010, R&D Tax Credit Specialists won Best Specialist Tax Advisors in 2019, the firm focuses on the software industry and computer science firms, you gain award-backed r&d tax services and clear processes.
• Andrew Dean holds a Master’s in Finance from LSE, he has 15 years’ experience and in 2015 he developed claim processing software that cut processing times by 30%, you file claims faster and with precise documentation.
• Our claim processing software reduces the time your tech team spends preparing claims, the technology driven approach captures project evidence, you free developers to work on the product while we prepare a strong software r&d claim.
• We captured qualifying expenditures that non-specialist accounting teams would miss, we traced eligible r&d costs in existing software, extensions to frameworks and third-party libraries, you recovered larger, accurate credits.
• You face heightened HMRC scrutiny, our specialist expertise ensures claims meet the definition of r&d for tax purposes, you submit a claim that stands up to review and secures tax reliefs.

How to Make a Robust Claim for Software R&D Tax Relief

You must gather exact technical evidence. Start early to meet HMRC rules.

1. Assemble a technical team and include a senior developer to record scientific uncertainty, code trials and experiments, proving how your software development projects qualify as a qualifying R&D project.
2. Record project dates, aims, and results, and complete the Additional Information Form required for all claims from 1 August 2023, so HMRC sees clear, dated evidence for each software development claim.
3. Log eligible costs, including direct R&D staff, externally provided staff, consumables like fuel and power, prototypes, subcontracted R&D, data and cloud computing costs, and pure mathematics costs, with numeric totals per category.
4. Note the overseas subcontractor rule change, effective for accounting periods starting 1 April 2024, and classify overseas spend correctly, with contracts, invoices and payment dates to show inclusion in an R&D tax claim.
5. Produce more case studies than before, with test logs, failure notes, version numbers and final results, to meet HMRC scrutiny and show how your work contributed to innovation and the field of software.
6. Attach feasibility studies, links to software development kits and code repositories, commit hashes and API examples that prove a lack of readily available solutions, and explain how extending software frameworks failed or succeeded.
7. Use a chartered tax adviser to review capitalising software expenditure, as capitalisation can reduce claim size, and have R&D Tax Credit Specialists assess tax and accounting choices to maximise eligible for tax relief amounts.
8. Describe experiments that overcame technological uncertainty, list prototypes and test steps, and connect outcomes to the software product, software guidance and types of software affected, with precise dates and measures.
9. Quantify staff hours, externally provided services, subcontractor totals, data costs and cloud platform fees in pounds, and include clear numeric summaries for each qualifying R&D software project for HMRC review.
10. Keep a single claim pack with code host links, test results, SDK references, feasibility reports and access instructions, and retain records for inspections, audits and any follow up requests from HMRC.

Common Misconceptions and Recent Legislative Changes

Many software businesses assume only brand new software counts for R&D tax relief. Improvements that overcome technological uncertainty qualify for r&d, and failed experiments qualify if the aim was to advance knowledge.

Subcontractor work can also qualify, but new rules on overseas subcontractor costs take effect from 1 April 2024. Examples include new algorithms, machine learning models and cloud platform work.

Since April 2023, pure mathematics and data, cloud computing costs of software are eligible for r&d tax. R&D Tax Credit Specialists guides software developers, software specialists and software businesses on which costs can be included in an r&d claim.

You should not claim routine changes, standard customisations, market research or basic testing that lacks technical uncertainty.

Conclusion

You learned which software projects qualify for R&D, the criteria for R&D, and the costs you can claim, like staff costs, prototypes, and data and cloud computing costs.

Start with 3 clear steps to prepare software development claims, write a project report, log 3 cost types, and link each cost to the technical uncertainty you solved. Ask yourself, would your AI models, platform upgrades, or infrastructure work meet GfC3 and DSIT examples of qualifying R&D? Find guidance from R&D Tax Credit Specialists, use tools like GitHub, container tools, and cloud platforms for records, and get a fast, evidence based claim review.

You will meet Andrew Dean, you will gain 3 measurable benefits, and you can start your claim today.

FAQs

1. What is the Nature of software R&D, and what are the criteria for r&d?

The Nature of R&D is work that seeks new knowledge, or new ways to solve a technical problem. A project is r&d when it faces uncertainty and uses tests to find answers. The criteria for r&d ask if the work advances science or technology, and if results of r&d are not routine. See examples of qualifying r&d to check your case.

2. When does r&d begin, and what are the results of r&d?

r&d begins when work starts to resolve a technical uncertainty. You plan tests, you try fixes, you collect data. The results of r&d are new code, new methods, or evidence that a route does not work.

3. Do software projects qualify, and when is it possible to claim?

Many software projects qualify if they meet rules. Ask whether the software project has a technical hurdle, and whether it would qualify for r&d. Check if software development qualify for r&d, and if development qualify for r&d tax. If so, it is possible to claim.

4. What can be included in an r&d tax claim, and how do software development claims work?

You can include staff time, subcontractor costs, software licences, and prototype costs that contribute to r&d. Costs included in an r&d tax claim must link to the work that tests and proves ideas. Good records help all software development claims.

5. Which branches of software, like educational technology, also qualify for r&d tax?

Many branches of software can qualify. Educational technology, tools for communication, work on usability, and adaptation of platforms may also qualify for r&d tax, if they solve a technical problem. Code taken from the public domain, with no new technical work, will not count. Rapid change within the software industry can make more projects eligible.

6. Who can help when it is hard to tell if a project qualifies, and why use market-leading advisers?

If it is hard to judge whether the software project would qualify for r&d, get help. Market-leading software r&d tax advisers know the rules, they guide claiming r&d tax, they explain purposes of r&d tax, and they show how work made it uncertain whether software would meet the tests. They speed up claims, and reduce risk.