This area of R&D claim compliance is one of the most difficult as a lot of misperceptions exist. I am going to look at two examples of interactions I have had about software related claims to demonstrate the problem.
A talk through my professional body. Continuous Professional Development (CPD) is important in any accountancy professional body. Prior to Covid my body gave approximately monthly talks by guest speakers as a contribution to this. In a talk about taxation and tax advice where the speaker gave a brief overview of some specialist tax reliefs it was stated that the fictional example client being talked about “had done some software development and could claim R&D Tax Credits on this”. No more was said until I raised the issue at the end of the talk. One of the major challenges in claiming software R&D Tax relief is the misperception that software development simply qualifies by virtue of being software development. It is convenient, quick, and easy to say categorically “x” qualifies. But the reality with any R&D claim including software related claims is that a project only qualifies if it meets the qualification standards.
No field of science or technology automatically qualifies just by being work in a particular field. The “Bible” on R&D claims is the BIS Guidelines (formerly DTI Guidelines) (2004) and makes this clear. The correct comment on qualification is definitively “software development qualifies for R&D Tax Relief if it meets the conditions set out in the BIS Guidelines 2004”. At that point brevity goes out the window and you need to look at the 43 paragraphs of the Guidelines and make a judgment case by case. To make things slightly more arduous software claims have their own specific Guidelines: BIS Guidelines (formerly DTI Guidelines) (2004) – application to software. These were revised in 2018 and a section of case studies added in CIRD 81980. The intention of these changes was to improve understanding on qualification, it is very debateable that this was successful.
A talk with a business owner being flooded with R&D telesales calls, and spam emails. I was contacted by both an existing client and their accountant asking me to talk to a business owner they knew who nobody believed qualified for R&D relief but was getting so many marketing approaches they were concerned they were missing something. This is a huge problem, almost subconsciously if you get enough approaches about something you start to think it is relevant to you. This is a major principle of marketing with repetition combined with the fear of missing out (FOMO). But a difference exists between buying a car you did not know you needed, or going on a holiday that had a great advert but is not really you etc than being FOMO'd into making a R&D claim you don't qualify for. One is between yourself and a vendor while an R&D claim involves tax payer money and company tax return with all that this involves legally. I talked to the business owner and as with the first example one of the sales approaches attempted on him was that “software development qualified” and he had bought and configured software. We talked through qualification and it was 100% clear the work was not qualifying R&D. The business owner to a large degree knew this but the marketing caused him to doubt his own totally correct instincts.
I talk to so many companies where the weight of marketing approaches has created a false view on qualification. It is not until the Guidelines are worked through you actually find out. The lesson here is that business owners should be sceptical of “cold” approaches and look for professional advisers through word of mouth. It is also important to read the Guidelines yourself and take your own view, and answer the question “am I comfortable with claiming this?”. Anyone suggesting an R&D claim can be made quickly with zero company input is unfortunately selling “snake oil”. An R&D claim should be taken seriously and judgments carefully considered by all involved.
Every software project is likely to be bespoke and different, but this does not mean all software development qualifies. This is a complicated area. Contact us today to discuss your R&D claim.
Chris Toms MA MAAT – Director RandDTax