What projects qualify for R&D Tax Credits in software?

We are on the cusp of a technological avalanche, where artificial intelligence and augmented reality are rapidly becoming a big part of our daily lives. For this reason, software development is one of the biggest areas for which you can claim lucrative R&D Tax Credits.

Revenue has singled out software development as needing extra guidance as the industry is so fast-moving it can be difficult to identify R&D compared to the medical sector, for example. So we’ve put together this article to help.

What are R&D Tax Credits?

The idea behind R&D Tax Credits is to financially support projects that advance science and/or technology in the field your company operates. It can be claimed on many different types of projects, like those which improve an existing process, product or service and even those which have ultimately failed in their goal. Small companies who have been subcontracted can also claim, even if the overall project doesn't qualify. You can claim R&D Tax Credits up to two years after the accounting period closes.

How does this apply to software development?

The software industry is constantly moving, which makes it highly susceptible to many forms of innovation and research and development.

A project which is quickly made redundant due to the innovative nature of the sector can still be the subject of a claim. However, it is equally difficult as most advances in the field are incremental. Furthermore, even if the project is innovative, it needs to adhere to the five qualifying criteria.

• Are the activities systematic, investigative or experimental?
• Are the activities being carried out in an approved field of science or technology?
• Do the activities achieve Revenue’s definition of R&D?
• Does the company seek a technological or scientific advance?
• Do the activities resolve a technological or scientific uncertainty?

Usually, R&D is found in the search for new architecture techniques or software constructs, taking place at the algorithmic, design or architectural level. The customisation of software to a company’s needs is not enough to qualify; the project must make a technological advance for the field. The key to working out if your project would qualify is proving that an industry professional could not easily deduce your method.

There are many parts of the process which can be claimed for:

• Planning – outlining and estimating for the R&D elements in your project will qualify.
• Analysis, design and development – activity relating to the R&D activity will qualify.
• Testing – as long as the tests aid development, they qualify. Confirmatory tests after or during the project is completed will not qualify.
• Maintenance – in general, maintenance activity does not qualify, unless new problems emerge which require R&D.

What kinds of software projects qualify for R&D Tax Credits in Ireland?

There’s a massive range of projects that will likely attract an R&D Tax Credit claim. This is by no means an exhaustive list, however, as a guide these are some of the common ones:

• Developing internet security
• Projects that include data science
• Any development that includes Machine or AI learning
• Blockchain development
• Development of neural networks
• Algorithm design
• Developing programs that process big data
• Software development for IoT, robotics and IIoT
• Game design
• Firmware development

Resolving uncertainties

One thing many applicants for R&D Tax Credits come unstuck on is whether a qualifying scientific or technological uncertainty has actually been tackled.

Essentially, your project is likely to meet the criteria if the solution is not easily deduced by a competent professional in the field. In other words, the solution should not be obvious, or already in the public domain. Generally this means one of two things:

Either: your software development project brings about a technical challenge and it’s not clear from the outset whether the challenge can be solved by a competent professional. This might be in the form of security, reliability, scalability or performance for example.

Or: a competent professional can solve the technical challenge your project presents but it’s not clear how the desired result can be achieved in practice. This uncertainty then means some kind of experimental development is needed to resolve it. For instance, various protocols, algorithms, development frameworks etc. need to be tested until you are confident the optimal solution has been found.

Final thoughts

Software development is a key sector for R&D Tax Credits as it is innovative by nature. The fast pace of the field ensures R&D is always occurring. If your company can prove your project has made an advance in technology to the benefit of the industry, then you may be entitled to R&D Tax Credits. And with up to €37.50 for every €100 of R&D expenditure reclaimable, even the smallest claims can easily add up to tens or hundreds of thousands in extra cash.

Don’t risk missing out!

Ready to make your fully optimised R&D Tax Credits claim?

Although the R&D Tax Credits scheme is notoriously generous, it’s also notoriously difficult to navigate. Understanding exactly which of your costs are claimable - and whether your project even qualifies at all - can be a real challenge. It’s tempting to be cautious and under-claim, but in reality this risks leaving money on the table that rightfully belongs to your company. However, but over-claiming, you could bring yourself to the attention of Revenue, who may then launch an investigation. It’s a stressful and often costly exercise that’s certainly best avoided.

For these reasons and more, savvy companies in Ireland use the services of a qualified, experienced R&D tax consultancy like us at Myriad Associates.

When you work with our team, we’ll take the time to understand your project and your costs. We’ll then put together a watertight claim that stands an extremely high chance of being accepted by Revenue first time. Plus, our low fees are incredibly competitive and there’s nothing to pay until your claim is settled.

Don’t leave your R&D Tax Credits claim to chance. Call us today on +353 1 566 2001 or send us a message using our contact page.