Updated Guidance from HMRC on claims for Software Development projects

Updated Guidance from HMRC on claims for Software Development projects
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  • R&D Tax Advisors are invited to find out more about the Inspired.tax claim preparation software.
  • Otherwise, please feel free to continue to browse this website for useful information regarding claiming R&D Tax Credits in the UK. However, beware that none of the information has been updated since 2018.
Oct 2018

HMRC have issued new guidance on the application of the R&D Tax Credit Guidelines (a.k.a. the BEIS guidelines) to Software development projects. Software development as a field has experienced significant growth in the number of R&D claims submitted over the last few years. This growth has led to the HMRC CDIO team inquiring into a large number of software claims. Thus the updated advice is very welcome to many companies.

Have the BEIS Guidelines (formally the BIS Guidelines) Changed?

No. The BEIS guidelines stay the same and still apply to all fields of Science and Technology. The guidance issued compliments these guidelines, adding clarity for Software Development projects.

Are there any changes to the Categories of Includable Costs?

There are no differences to the costs that will qualify for R&D Tax Credits.

The Purpose of the Updated Guidance

The additional guidance is to apply to software projects and clarify the concepts of Scientific or Technological Advances, Scientific or Technological Uncertainties and Project boundaries. It is intended to link common software development scenarios to specific paragraphs within the BEIS guidances. HMRC emphasise that software R&D has equal applicability as other forms of Research and Development. Software Development projects that qualify as R&D can either occur in their own right or as part of broader R&D Tax Projects.

Critical Points for Companies to Take Away

Companies need to be very clear why the project Advance is an overall Advance in Technology. Not a functional advance and not an advance relative to the companies own state of knowledge and capability. Being able to articulate and illustrate the current baseline of the field of Science or Technology, and how the company's technology goes beyond this is required to satisfy this requirement.

The updated guidance states explicitly that the company must be seeking a Technological Advance that is beyond a list of new features, functions, commercial operations or new business processes.

What Should Companies do?

If you use the RD Relief platform, nothing, as it has been updated with the latest HMRC advice - meaning that your company's Competent Professionals will not be working to out of date information. Companies that do not use, RD Relief, should read the updated HMRC advice and circulate it amongst all competent professionals involved in the claim.

What About in the case of an Enquiry?

Possibly the most significant change in the latest guidance is that if a dispute arises, the competent professionals must be able to articulate the baseline of knowledge and capability available in the public domain (at that precise point in time) and answer any associated HMRC questions.

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