How R&D Tax Credits relate to software projects

Companies large and small up and down Ireland are continuing to benefit from R&D Tax Credits. First launched back in 2004, the scheme means that eligible organisations engaging in innovative R&D activities can claim back up to 25% of the costs incurred. Add that to the 12.5% standard deduction and you're looking at 37.5% of qualifying R&D expenditure being reclaimable - not something to be sniffed at.

Find out more on our R&D Tax Credits page.

How do R&D Tax Credits work with software development projects?

Software development in general is a sector that really lends itself to R&D Tax Credits. This is because projects typically require substantial technological experimentation where the outcome is unknown from the start.

However, throughout our many years working in R&D funding, we’ve found that Revenue tend to scrutinise applications from this sector even more closely than usual. This may be because of the sheer volume of R&D Tax Credit applications arising from software developers, many of which don’t quite hit the mark. Essentially, some claimants believe that just because they’ve created some new features in their software that they’re eligible for the award - but unfortunately that’s rarely the case. To qualify, you have to have made a technological or scientific step forward that could not easily be solved by a competent professional in the field. Just because something is new, it won’t automatically attract a claim.

Software development R&D claimants must always ensure that their projects are compliant, or Revenue may well raise a dispute or even an enquiry. This is why working with an experienced team of R&D tax experts like us at Myriad Associates is so important.

Based in Dublin, we can work with you remotely by video call or on the phone to ascertain whether your R&D project is eligible for R&D Tax Credits or not. We will then guide you through the application process, pointing out all the relevant pieces of expenditure and helping you avoid a Revenue investigation. Why not meet our team.

Five main qualifying criteria

The software industry is fast-paced and dynamic, making it highly innovative. However, no matter how innovative a project is, it still needs to meet the five qualifying criteria for an R&D Tax Credits claim. The work must:

• Be experimental, systematic or investigative
• Achieve Revenue’s definition of R&D (again, our team can help you with this)
• Have been undertaken in an approved field of technology or science
• Seek to make an advance in science or technology
• Aim to resolve a specific scientific or technological uncertainty

Generally research and development occurs when developers devise new architecture techniques or software constructs. These often take place at the algorithmic, design or architectural level. Software customisation that’s been completed solely to suit the company’s needs isn’t enough on its own to qualify; the point of R&D Tax Credits is that the whole field benefits, not just one company.

There are many parts of the software development process which can be claimed for. These include (but are certainly not limited to):

• Planning - this may be outlining which parts of the project will be eligible
• Analysis, design and development
• Testing, as long as it’s part of the development process

Note however that general maintenance and upgrades won’t be eligible. The only exception to this is if a new problem emerges with the software that requires further R&D.

Remember: The software being developed does not need to be unique

When looking to meet a project’s goals, software development teams will often have to come up with new programming approaches. This again is the perfect place for R&D to thrive, thanks to the unique methods of solving the project’s technology challenges. However, the software itself doesn’t actually have to be unique.

The first step is in understanding at what stage of the project the technological advancement actually occurred, not placing too much focus on the application’s functionality and features. After all, it’s very possible to have two identical applications that function in exactly the same ways, but that have entirely different algorithms, architectures and developmental challenges behind them. Therefore one application may attract R&D Tax Credits while the other one may not.

Importantly, it doesn’t matter if a piece of software is a CMS, CRM system or any other business application. It’s also not about what the application does, but how it does it.

R&D Tax Credit claims for software development are often complex

Claiming R&D Tax Credits in relation to software development is not for the faint hearted. It requires strong technical knowledge of the R&D Tax Credits scheme as well as an up-to-date understanding of the legislation surrounding it. Then of course there’s the technical report.

When putting together an R&D Tax Credit claim for software development, the onus is on you to justify why your work qualifies. But even the default criteria of the ‘resolution of technological uncertainty’ or ‘advancing knowledge’ can be difficult to map onto a project without specialist guidance.

This is where the Myriad team’s knowledge and expertise come in, having worked with numerous software companies before. Not only will we make sure your claim is completely watertight against Revenue scrutiny, but we’ll maximise it too. This means you can rest assured in achieving the entire amount you’re owed.

Need some further advice?

We appreciate that claiming R&D Tax Credits is a minefield and not exactly straightforward. If you would like to ask a question, or indeed get your claim started, please do contact our expert R&D team on +353 1 566 2001.