How to claim Tax Relief on your R&D
A well-timed investment into digital products can disrupt an industry and deliver incredible returns. However, that first stepping stone – investment – is one that many people hesitate over when it comes to raising capital.
Yet what many of our clients don’t realise is that building software can put you in stead for a lucrative form of cashback: research and development tax credits. This can absorb a substantial portion of the cost that comes with software and app development. So let’s examine this tax break, and whether you might be eligible.
What are R&D tax credits?
Research and development tax relief was first introduced in 2007. The initiative was designed to spur innovation within UK businesses, by reimbursing a portion of the investment into R&D in the form of tax credits. Digital innovation, such as apps and software, falls into this bracket, which is good news for anyone embarking on a development project.
Organisations can claim back the equivalent of 33p for every £1 on expenditure that qualifies for R&D tax relief, providing the project “seeks to achieve an advance in overall knowledge or capability in a field of science or technology, through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge […] The project must relate to your company’s trade: either an existing one, or one that you intend to start based on the results of the R&D.” HMRC
In truth, then, the basis for such tax relief rests on what you know or what you’re able to do. In the first camp, we can include analytical tools, learning programmes and software that monitors the internal workings of your team. In the second, the definition spreads to encompass pretty much anything that has a tangible benefit for those who use it. And often, of course, knowledge will influence what we’re capable of – the two go hand-in-hand.
Where can R&D relief be gained?
By taking advantage of these tax laws, businesses can receive a cash injection to (partly) mediate the cost of investment. But how do you evidence your research and development, to claim money back on your capital outlay?
To qualify, you’ll have to describe what function it fulfils that no other software can pull off, and how this has been achieved. In regards to the research and development process, you’ll also have to outline which uncertainties are being solved. Even if this isn’t wholly successful (which it should be, given the right developer), then relief may still be granted, providing you outline why the shortcomings arose.
We always advise anyone looking to invest in a digital product to seek advice from an expert in R&D tax credits, feel free to get in touch for some recommendations. They’ve helped many of our clients gain cash back for their digital innovations, by working closely with us to ensure the project is eligible for government funding. Contact us to find out more, or see our project gallery for inspiration.