Understanding Claiming R&D tax credits in your Software Development Life Cycle

R&D tax credits for software development

Research and development tax credits may not, prima facie, appear a key consideration as part of your software development process. But, with many thousands of pounds often available through successful R&D tax credit claims, the significance of establishing this requirement as a key component of your development life cycle may well prove invaluable to the on-going success and operations of your business.

So where should the procedure to claim R&D tax credits sit within your life cycle? We take a look at how incorporating such a key activity will enable your company to benefit from the government-led scheme for rewarding innovation and intelligent solutions in the software development industry.

Agile or Waterfall?

When it comes to software development, two schools of thought are dominant in the process: Agile and Waterfall. These methodologies represent specific approaches to project completion, with Waterfall the more traditional of the two and demanding that each stage of the development process to be completed before moving on to the next. Agile, meanwhile, as the name suggests, is slightly more flexible and doesn’t follow such a linear process.

Regardless of the management methodology used, many activities involved throughout the process will be regarded as R&D activities and thus will form part of any future claim. For example, such stages as the following can all be considered key milestones and part of the R&D process:

• Concept development
• Specification design
• Design, test, and execution
• Beta testing
• Technical documentation
• Compiling research data

Each step along the software development life cycle thus demands investment in terms of personnel, so any project should be adequately rewarded. This reward – as part of either the SME scheme or the RDEC scheme for larger organisations – will come through making a claim on the qualifying expenditure associated, such as salaries, National Insurance contributions, subcontractor costs, and materials and utilities required for the processes.

Documentation and record keeping

For any R&D tax credit claim, being able to demonstrate that your work is fulfilling the criteria of seeking an advance in science and technology is key. It also pays to ensure that you properly document in full the nature of your project and the associated costs, whether doing so yourself or by working with experts in R&D credits. Software development claims can be complex, so it’s essential that you understand the demands associated with making your application for the best chance of success.

Keeping in mind the fact that your software development activities are likely to qualify for R&D tax credits should form part of any management plan. Being aware of the need to maintain thorough records of the expenditure and activity will help ensure that when the time comes to make your claim, you are fully prepared with the information necessary to succeed.