R&D Tax Relief for Software Development

Constructing a claim

Experience has shown that it is well worth discussing your proposed approach to the claim with your tax inspector. Make sure that he or she understands how you are assessing and quantifying the work done, and check what supporting documentation he or she requires. They need to understand how your business operates and how costs are allocated. It might be that you feel that say 33% of a particular function’s costs are eligible; we have found that the inspector is receptive to such an approach once they understand the reasoning.

Constructing an acceptable claim is not usually something which can be left solely to the financial function within a company … the accounts department may well be able to identify costs and associate them with particular functions or projects, but are usually not able to assess the innovation or uncertainty within the technical tasks, and may well not be familiar with the R&D tax relief regulations. Those staff who are able to understand the technological issues are likely to be best used earning revenue, or improving product, rather than being distracted by taxation issues.

There might be ways in which your business could ease the construction of a claim – for example by considering eligibility at the start of a development activity, or by refining the way in which costs are recorded – but it is, as ever, important not to allow the “tax tail to wag the business dog” !