Research and development in software and IT
Technology is one of the world’s most rapidly evolving sectors. It’s also inherently risky. In a fast-paced, technically complex environment, the technical success of R&D can rarely be guaranteed. There is always the risk that the planned performance specifications will not be met, that the time to project completion will be stretched out, and that the research and development costs incurred will be higher than forecasted. There is a greater risk still that the technology may soon become obsolete and be displaced by a superior technology.
It’s welcome news then that in a sector dominated by R&D, the treasury has (for the first time in its 22-year history) recognised the R&D tax legislation should be updated to broaden the definition of qualifying software expenditure which can be included to claims.
The expanded definition will affect accounting periods beginning on or after 1st April 2023 and the new allowable expenditure items will include:
- Licence payment for datasets; and
- Cloud computing and software
At present, only the costs of software licenses which facilitate R&D are allowable for R&D tax relief. In 2022, software licenses represent only a small fraction of the potential R&D related IT costs which a company may incur and so we welcome the move to broaden the scope of expenditure of this kind.
The government is very aware that datasets are an essential R&D input for companies in many sectors, particularly where the most cutting-edge computational R&D techniques are being used. Therefore, expenditure via licence payments on purchasing datasets which are used directly for R&D purposes in a qualifying project will rightly qualify for the relief.
In addition, the government will allow businesses to claim relief for the cost of cloud computing services used directly for R&D; for example, costs which can be attributed to computation, data processing, analytics and software.
YesTax – Claim Preparation
We have a great breadth and depth of expertise in this sector. In such a high-risk, fast paced, complex environment, it is imperative that companies in this sector are claiming the invaluable R&D tax credits available whilst ensuring their claims are prepared in accordance with best practice and the requirements set by HMRC. Translating complex, technical advances being made as part of a software development project undertaken over a number of years and in a format expected by HMRC, is often difficult to articulate. Unsurprisingly, the sector attracts some of the highest rates of enquiry, and hence why it is encouraged that companies enlist the help of a specialist when compiling and preparing these types of claims.
Whether you are making a claim or not, we’d be delighted to hear from you to review your recent project work or indeed any projects anticipated for the future. There isn’t a question we can’t answer in this field, and we undertake complimentary reviews to ensure that, if you are eligible, you are benefitting from the opportunity. Whatever your circumstances, please don’t hesitate to get in touch.
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