Almost every R&D Tax Relief claim that we process includes some form of software expenses. But it’s hardly surprising, as every business today has software costs. We use software in just about every business process we do! It’s also the one R&D cost that most businesses feel comfortable with, when they come to make their R&D claim.
But what you might not know, is that there is one big grey area, meaning certain software costs cannot be claimed.
Let’s find out the fundamental rules when it comes to software costs, and what exactly this mysterious grey area is.
SOFTWARE COSTS: THE FUNDAMENTAL RULES
The rules around software costs would appear to be straightforward:
- If the software has been purchased only to be used in an R&D project, then you can include 100% of the cost in the R&D tax claim.
- If you use the software for other business activities that sit outside of the R&D project, then you need to calculate an appropriate proportion of the software’s cost to be included in your claim.
Simples, right?
SOFTWARE COSTS: THE GREY AREA
With software, there are often ‘other costs’, that are incurred alongside the software when it is leased from external parties. It’s these costs where the grey areas start to creep in. These costs fall under the banner of ‘cloud computing’ and charges could be for a whole range of activities, including use of software, storage rental, and support.
CLOUD COMPUTING & HOSTING
Cloud computing and hosting is particularly relevant for businesses that are involved in R&D projects related to the development of software. It’s these ‘cloud computing’ costs that unfortunately do not meet the requirements of any of the qualifying criteria to make an R&D claim. It’s quite common for businesses to purchase packages which are used to support activity across their business operations as well as R&D activity. Therefore, it’s key to track the costs dedicated specifically to hosting the testing and development environment, when using the services.
The likelihood is you’ll be using software somewhere in your business, and it could impact your R&D claim. Like a lot of R&D categories, software has its grey areas, but that’s what we are here for, we will work with you to ensure you submit an accurate R&D claim.
As we speak new changes are on the horizon from April 2023 to include all cloud costs associated with R&D, but stick with us and we’ll make sure you’re up-to-date as the changes come in.
THINK YOU MIGHT BE ELIGIBLE TO CLAIM?
If you think you might be eligible for R&D Tax Relief, and you’d like to find out more about how we can help you make your R&D claim, please book a call here.
Partners with Radish Tax
We’ve partnered with Radish Tax by Diagnostax – a specialist R&D Tax Relief provider. Tim & the team at Radish Tax are friendly, easy to work with and make the process of claiming R&D Tax Relief painless.
Find out more about Radish Tax by Diagnostax.