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Software

 
HMRC R&D Tax Credit Statistics for 2023-24
10,245 Claims
£1.56 Billion Claimed in this Industry
£127,184 Average Claim Size
HMRC Band J - Information and Communication

Software businesses often involve developing innovative platforms, systems, and technical solutions to improve performance in rapidly evolving markets. Here, we explore how R&D applies across the sector and the areas where you’ll find qualifying activity within the industry to help you understand if you could be eligible.

Understanding R&D within the Software Sector
Understanding R&D within the Software Sector
Understanding R&D within the Software Sector
Industries in the Software Sector
Industries in the Software Sector
Industries in the Software Sector
Example Qualifying Activity
Example Qualifying Activity
Example Qualifying Activity
DSIT Guidelines Within Software
DSIT Guidelines Within Software
DSIT Guidelines Within Software
Case Studies
Case Studies
Case Studies
Managing Enquiries
Managing Enquiries
Managing Enquiries
Industry Whitepapers
Industry Whitepapers
Industry Whitepapers
Related Articles
Related Articles
Related Articles
INTRODUCTION

Understanding R&D within the Software Sector

R&D tax relief is highly relevant for software specialists, though identifying prior knowledge and baseline technology can be challenging. In the landmark enquiry Get Onbord Ltd, HMRC initially argued that the company’s use of existing processes did not advance overall knowledge. The first-tier tribunal overturned this, recognising a clear gap in technological capability.

While day-to-day software development does not qualify as R&D, relief is not “all-or-nothing”, we focus on identifying specific elements of a project where genuine technological innovation occurs. With our industry experience and research expertise, we can reliably demonstrate advancements, support claims, and defend enquiries.

 

 

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Core Sectors Within Software

The six main industry areas that make up the software sector
Artificial intelligence Develops software that can learn from data, automate decisions, and generate predictions or content.  
Cloud and distributed systems Builds scalable software infrastructure, platforms, and services that run reliably across networks and data centers.  
Cybersecurity Researches tools and methods to protect software, data, and systems from attacks, breaches, and misuse.  
Developer tools and software engineering Creates programming languages, frameworks, testing tools, and workflows that improve how software is built.  
Data platforms and analytics Focuses on systems that store, process, and analyse large volumes of data for decision-making and automation.  
Human-computer interaction and UX Studies how people use software and designs interfaces that are more intuitive, accessible, and effective.  

Examples of R&D activity in Life Sciences:

  • Legacy System Adaptations
    Updating existing software architecture, particularly legacy systems, through advancing industry-wide understanding of software, data infrastructure and knowledge surrounding complex transitions between systems for which there was no simple or obvious process available.

  • Data Standardisation and Synchronisation 
    Reliably adapting data structures and databases so that information can be integrated into a new framework through the development of automated processes, AI based solutions, or API based transitions between disparate systems that caused headaches and challenges throughout their implementation. 

  • Security Systems
    Undertaking complex software processes under the confines of evolving security constraints and ensuring a future-proof system architecture.


  • Automations
    Reliably adapting data structures and databases so that information can be integrated into a new framework through the development of automated processes, AI based solutions, or API based transitions between disparate systems that caused headaches and challenges throughout their implementation. 

  • Development of New Functionalities 
    Implementing new functionalities into a proprietary system where no existing processes or known methods could be used to complete such a task. This would typically occur where trade secrets are present, or in situations where the knowledge of how a system behaves as a whole is unknown; despite each constituent part being well understood. 

    Other Areas
  • Development of AI systems for fraud detection.
  • Embedding advanced modelling or decision tools.
  • Integrating new financial models into existing systems.

What Does This Relief Translate to in Real Terms?

To help bring this into context, we've included a selection of anonymised client examples showing the types of projects that have qualified, along with the level of relief they were able to claim.
View Examples

What doesn’t count as R&D in the software sector?

  • Routine copying of existing products or processes
  • Aesthetic or cosmetic design improvements
  • Market research and trend analysis
  • Using off-the-shelf components as intended
  • Standard testing and quality control
  • Patent searches, fees, and legal work
INSIGHTS PREVIEW

WHAT WE HAVE TO SAY

Our fantastic team of report writers have prepared articles covering the land of tax extensively. If you have a question relating to accounting or tax, it's likely we've already written the answer.

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The Claim Process

We understand the complications that can often arise when completing an R&D claim, not to mention the significant amount of time it can consume, diverting your attention from driving your innovation forward. That's why we have streamlined a transparent and hassle-free process that follows a step-by-step approach from start to finish.

Throughout your R&D claim process, we maintain open lines of communication tailored to your preferences. Once we have compiled comprehensive technical and financial reports, we take the responsibility of submitting them and proactively follow up with HMRC, leading the communication on your behalf. Often, our next contact with you brings the exhilarating news of success and positive outcomes.

  • Step 1

    We'll gain your authorisation via our client instruction form/NDA. This will enable us to discuss your R&D activities along with your current tax position. This will enable us to discuss your R&D activities along with your current tax position.

  • Step 2

    We'll analyse the profit & loss (P&L) statement of the business while facilitating your technical call. This step aims to determine whether your case is feasible from both technical and financial perspectives.

  • Step 3

    Once our experts are confident that your case meets the R&D eligibility criteria, we will then gather all the required technical information and financial documentation according to HMRC's standards to support your case.

  • Step 4

    At this stage, we initiate a stringent compliance procedure that we have developed in-house to audit your R&D claim application. We verify whether it meets the defined standards before submitting it to HMRC to ensure a positive outcome.

  • Step 5

    After conducting a comprehensive review of your R&D claim, including all required documentation, the application will be forwarded to HMRC for further processing.

  • Step 6

    Our team maintains continuous contact with HMRC regarding your case. If any queries arise, we address them on your behalf using a highly systematic approach to maximise your outcome while minimising any delays in your repayment.
HOW EFFECTIVE ARE

DSIT Guidelines

The DSIT Guidelines form the foundation for compliance when preparing an R&D claim. In conjunction with the wider scope of HMRC’s guidance in relation to R&D Tax Relief, they set out how to determine whether work qualifies and provide practical examples of how to apply the criteria to evidence R&D within a project. These guidelines should not only underpin the assessment process when compiling a claim but can also be referenced during an enquiry defence if required. By demonstrating to HMRC how a project aligns with the definitions and scenarios outlined, you can clearly evidence that the innovation undertaken qualifies for R&D tax relief. Below are five of the guidelines we most frequently rely on to support qualifying work. 

DSIT 3 Software projects aim to advance knowledge or capabilities within the sector, often addressing challenges in system architecture, platform integration, or scalable software design.  
DSIT 7 Companies often seek to advance a field of science or technology which can have either tangible consequences, such as improving the security of a system by implementing a segmented software architecture for an existing system; or intangible consequences, such as new knowledge regarding integrations of legacy products or the behaviour of various data structures.   
DSIT 9 A project may extend overall knowledge, create a process or device, make an appreciable improvement to an existing process, or duplicate the effect of an existing product, to name a few types of qualifying activity.  
DSIT 11 If a particular advance in software engineering has already been made or attempted but details are not readily available, work to achieve such an advance is R&D. For example, where a software company has already developed a process that could more accurately consolidate disparate data sets, but the process is a trade secret, a company seeking to develop a similar process is still considered R&D.  
DSIT 21 Overall knowledge or capability can still be advanced in situations where companies are working in the same field independently, work is a trade secret, or where the details are not readily available; even where it is known that a particular advance has already been achieved.   

HMRC often reference software development examples throughout its guidance.

Drawing direct comparisons to HMRC’s own examples offers a clear and simple way to evidence compliance in R&D projects, whether relating to a single technical detail or an entire scheme. 

The following pages set out examples drawn directly from HMRC’s published guidance, which we reference where relevant within our reports. 
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A company is conducting R&D in the development of a software service for the commercial banking market in the US. Development requires the company to have a collocated team in the US due to access regulations within the US banking sector. This requires conditions (the presence of US banking systems and regulatory requirements) which are not present in the UK, and which would be wholly unreasonable to replicate. 

This condition exists in the US. Therefore, this activity would satisfy CTA09/1138A if undertaken in the US, where the necessary conditions arise. Under the new ‘merged’ R&D scheme, overseas costs that used to be claimable may be blocked from a claim and so it’s important to ensure your work remains compliant in the modern R&D landscape.

CIRD152000, Example 5

In determining the relevance of your R&D work, we firstly assess whether the work advances your field of science of technology, however we then need to consider what makes your work technologically or scientifically uncertain. A technological or scientific uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily deducible or available by a competent professional working in the field as per S.13 DSIT guidelines.

CIRD81960

Managing Enquiries - Case Studies?

The following examples illustrate how investing in R&D can deliver tangible results, especially in complex software projects. They are presented from a tax perspective rather than a technical viewpoint, explaining projects in a way that HMRC will recognise and accept, rather than using traditional industry language. Each study focuses on how the project is described, rather than providing a full breakdown of the DSIT guidelines applied. For further detail, more comprehensive case studies are available on the Wilby Jones website.

CONCLUSION

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Explore additional solutions for your Life Science project

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