New HMRC guidance clarifies R&D tax relief for software development

David Ward

David Ward

Tax Partner

Software development has probably been the most challenging area for companies and R&D advisers alike for clearly and consistently identifying what is eligible R&D tax relief. Misunderstandings over the boundaries mean some companies have not claimed all the relief they were entitled to, whilst others have over-claimed.

Software development claims have also caused HMRC’s R&D staff difficulties, as the information provided in support of claims has not always focused on the details they require. This has resulted in HMRC leaning on their own IT experts to help to review claims, often resulting in direct discussions between HMRC’s IT experts and the company’s in-house IT team to resolve matters.

Recently HMRC formed a software development subcommittee of specialists to review the guidance in detail. As a member of the main HMRC R&D Consultative Committee and having led the delivery of a large number of successful software development R&D claims, I volunteered to be part of this subcommittee to help improve the guidance.

The new guidance – what are the key changes?

The new guidance is far more detailed and should be easier to understand and apply. Some of the headline changes include:

Filling in the grey areas

Previously, the guidance had only given limited examples of software development projects at the opposite ends of the eligibility spectrum (dealing with the black and white if you like). It would list some obviously qualifying examples, such as developing a new semantic language and some obviously non-qualifying examples, such as using an off-the-shelf software package to develop a new and bespoke website. However, it didn’t deal with the more challenging territory in-between (the grey areas). It now does.

Clearer application of the definitions

The new guidance links common scenarios in software development with the relevant areas of the R&D definition to help establish if a project qualifies. It also makes clear that the advance must be in the underlying technology (i.e. what matters is the technological input, rather than the commercial output).

Questions to pose

The revised guidance helpfully lists the sorts of questions to pose when determining if the software development meets the criteria for example:

What is the baseline technology that any advance is being measured against?

What technological changes have led to the new technological advance, or attempted advance?


Get in touch

The R&D tax credits scheme has provided over £21 billion of R&D funding support to UK businesses. With this new guidance now in place, it’s an opportune time for companies to claim, or to revisit their previous claims.

If your company is involved in software development and you are unsure if you qualify for R&D Tax Relief, get in touch with me: or another member of the Innovation Taxes Team to find out more.