Published 20/04/2020
Modified 06/02/2023
5 min read

R&D Tax Credits for the Software Sector

Innovation Tax look into the  types of software development activities that could be eligible for an R&D Tax Credit claim.

R&D Tax Credits for the Software Sector

Software technology is advancing at an ever-increasing rate as the need for people, businesses and ultimately data to be connected to each other becomes more imperative; a concept which is unlikely to change anytime soon. Whilst most new products have ready-to-use interfaces to connect with other devices, others require additional development within a test environment to programme interoperability and those intended to interface with the most advanced technologies – such as artificial intelligence, robotics and augmented reality – may have to be updated or redeveloped completely.

What software development activities qualify for R&D Tax Credits?

Examples of the types of activity which are likely to qualify for R&D Tax Credits within the Software sector include;

  • Developing new or significantly improved software, such as a new app or software solution, that addresses a scientific or technological challenge.

  • Creating new algorithms or software architecture to solve complex problems.

  • Developing software to handle, process, or analyse large amounts of data in a new or innovative way.

  • Developing software that integrates with new or emerging technologies, such as artificial intelligence or the Internet of Things.

  • Developing software to meet the specific needs of a particular industry, such as financial services or healthcare.

  • Improving the performance, security, or scalability of existing software.

  • Developing software to automate manual processes or tasks.

Activities such as routine software maintenance, bug fixing, or creating off-the-shelf software do not qualify and whilst assessing any potential claim, its important to consider the following:

  • the baseline knowledge widely available at the commencement of the project;
  • and the underlying technological advance rather than the commerciality of any output

How do R&D Tax Credits support the Software Sector?

R&D Tax Credits can be particularly beneficial for SME’s in the software sector, as they can help these companies to finance their R&D activities and compete with larger companies whilst improving competitiveness; leading to increased economic growth, job creation, and cash flow.

R&D Tax Credits for the Software Sector, R&D Tax Credits for the Software Sector, Innovation Tax
The average annual R&D Tax Credit benefit received by companies submitting Software development claims is currently £72,000

What types of expenditure can be included in a R&D Tax Credit claim?

R&D Tax Relief can be predominately claimed on revenue expenditure in the following cost categories:

  • Staffing Costs
  • Subcontractors
  • Externally Provided Workers (EPW’s)
  • Consumables
  • Software licenses
  • Utilities

Why work with Innovation Tax?

As R&D Tax Credit claim specialists, with a highly skilled team that includes technical experts who have worked in the Software development industry for many years, Innovation Tax is ideally placed to support companies in this sector in efficiently & accurately identifying the full extent of their scheme qualifying activities and eligible costs and submit a robust claim that will stand up to HMRC scrutiny; whilst also ensuring that they are fully benefiting from other Government innovation tax incentives such as the Patent Box, and maximising their Capital Allowances tax relief on commercial property assets.

Client Testimonial

‘We’d been approached on several occasions in recent years by other service providers regarding R&D Tax Credits, but none were able to reassure us as to why we might qualify or convince us that the process itself would not impact on our primary focus to move our business forward… until we met with Innovation Tax. From the outset, they were professional, efficient and totally transparent, securing us an unexpected financial boost with minimal effort on our part. We look forward to working with them again later this year and would certainly recommend their services to companies like ours’
Li Ju, Managing Director of POGO Digital Ltd


It can be challenging to submit an R&D tax credit claim to HMRC’s exacting standards. At Innovation Tax our team of experienced sector specialists, technical and quality assurance experts and tax professionals will help you identify the full extent of your qualifying activities and expenditure and work with you to ensure the correct information is included in the claim documentation, giving you peace of mind that your claim is robust, maximised and defensible.

Start the conversation with a complimentary, no-obligation discussion.

Innovation Tax specialise in helping companies access vital innovation tax incentives and grant funding to enable their businesses to grow, increase profitability, reduce risk and enable further investment in R&D, IP and capital assets.

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