Claiming R&D tax credits for costs on software development
R&D tax credits for software development
It’ll come as no surprise to anyone that software development represents one of the world’s most lucrative and thriving industries. As such, more and more businesses are taking their place in the market to deliver innovative and intelligent solutions that are far-reaching and redefining working practices. This, of course, means many software development companies are engaged in extensive research and development activities and are thus eligible for R&D tax credits.
Taking advantage of R&D tax credits for software development means receiving the just rewards your business deserves for the innovative work carried out. From staffing costs to pension contributions, National Insurance payments to materials and utilities, a number of associated costs can form part of your claim. As such, the average value of a claim for software development companies is estimated to be in excess of £60,000, so ensuring you don’t miss out is vital.
Such is the broad and all-encompassing nature of software development in modern industry, it can be difficult to know precisely which projects qualify for R&D tax credits. Among those projects that may be included are:
- Cutting-edge software for new projects
- Extending the functionality of software applications
- Innovative ways to protect data
- Software for new hardware systems
Of course, it’s essential that any project undertaken meets the overarching criteria for any research and development work, namely that it should be looking for an advance in science and technology; had to overcome uncertainty; overcame this uncertainty; and could not easily be worked out by a professional in the field. Should your software development project tick all these boxes, you will be eligible to take advantage of either the standard R&D tax credit scheme for SMEs or the larger company scheme known as RDEC – R&D Expenditure Credit – depending on the size of your business.
What you can claim
For software development companies, the tax credits available for R&D work are calculated based on a number of expenses. Among the most common expenses that can be claimed are salary and wages, even a proportion of those related to subcontractors working on your project. Furthermore, materials and utilities that form part of the R&D expenditure may also form part of your claim.
The value of any particular claim depends on the scheme to which you’re applying. For the SME scheme, simply deduct 130% of your qualifying costs from your yearly profit, in addition to the normal 100% deduction. The result is a total 230% deduction from your Corporation Tax bill. Even loss-making software development companies can benefit, with the opportunity to claim a tax credit worth up to 14.5% of the surrenderable loss available.
With the value of R&D tax credits worth thousands of pounds, you should ensure you contact a leading expert in R&D tax as soon as possible to discuss the opportunities for your business to reclaim valuable benefits to reward your investment in research and development activity.