UK software developers missing out on R&D tax credits

Although there has been a continuing increase in the number and value of R&D tax credit claims, there are still thousands of companies – especially software development companies – that aren’t claiming what they’re entitled to.

Number of software development companies claiming R&D tax credits from HMRC

HMRC’s latest statistics for R&D tax credits are for the 2014-15 financial year. Once again, there was an overall increase in the number of tax relief claims submitted, as well as in the overall total amount of relief claimed. 

The total number of claims in the 2014-15 period was 22,445, with 18,630 claims under the Small and Medium Enterprise (SME) scheme (an increase of 16%). The industry sectors with the largest number of claims were ‘Manufacturing’, ‘Professional, Scientific, and Technical’, and ‘Information and Communication’. Software development activities are included under the ‘Information and Communication’ sector, which had 5,165 R&D tax relief claims in the 2014-15 period.

How many other software development companies are eligible to claim R&D tax credits?

The Department for Business, Innovation & Skills has provided business population estimates for 2015 showing that there were 1.3 million employing businesses, with 73,035 employing businesses in the ‘Information and Communication’ sector. If 20% of businesses in this sector – over 14,5000 – are eligible for R&D tax credits, there are over 9,000 businesses in this sector, including software development companies, that are eligible to claim R&D tax relief but are not doing so.

Misconceptions about claiming R&D tax credits for software development

There are several misconceptions about claiming R&D tax credits that prevent legitimate claims across the software development industry.

We don't qualify for R&D tax credits

There’s no simple checklist to determine what projects qualify for R&D tax relief, but in general, the business must be undertaking development activities that seek to achieve an advancement in technology, which many software development companies are doing in their day-to-day work. If your business faced technological uncertainties at the start of the project, and did not know whether a particular technological goal was achievable, that’s a good indication that qualifying R&D activities were taking place.

Claiming R&D tax credits is too complicated

Smaller companies may feel overwhelmed by the HMRC definition of R&D, and may not have the internal resources available to do further research on claiming R&D tax credits. However, HMRC publishes a manual on R&D tax relief and has provided a simple guide on R&D tax relief for small and medium-sized companies. There are also specialist HMRC units able to help with your claim, and you can find further assistance by contacting a specialist R&D tax credit advisor, such as Myriad Associates.

In 2014-15, over 85% of the R&D tax credit claims in the ‘Information and Communication’ sector were made under the SME scheme. On average, SMEs are claiming £46,000 each per year. R&D tax credits are extremely beneficial to companies of all sizes, particularly smaller enterprises, where cash flow can be a critical issue.

About Myriad Associates

Myriad Associates are leading experts in helping businesses maximise public funding for their research and development activities through R&D grants and R&D tax credits. If you would like to discuss any aspect of R&D grant funding or R&D tax relief please contact us today for a free, no-obligation consultation. We look forward to hearing from you.