R&D Tax Relief for Software Development

Project-based assessment

Most business activities which are classified as “projects” are accounted for individually, with the expenditure on each project being separately recorded. Sub-codes are often used to capture the costs of individual work packages within a project.

It is useful if eligibility for the tax relief is considered at the start of the project, particularly if that can be used to help determine cost reporting structures (sub-codes) in cases where the project may be only partially eligible. Nevertheless, the final assessment of the eligibility of a project’s costs within a company’s financial year can usually only be made with the benefit of hindsight, after the end of the financial year.

Consequently, our normal approach is to schedule a meeting with each Project Manager (or other individual familiar with the project and its technical challenges), as soon as possible after the end of the financial year. We use a standard questionnaire to guide the discussion and to help identify the innovation and technological uncertainty within the project. If subcontracts are let, the eligibility of their costs will be considered separately, as will purchases made by the project.

The way in which the resultant data is presented depends on the number and size of projects, but the Tax Inspector will normally require a report identifying the method used to carry out the assessments and summarising the costs identified as eligible.

Naturally, all records need to be kept available, whether to support enquiries or to help in constructing the claim for the following year.