What is the HMRC R&D Enquiry Process for Software Development?
Software development is one frequently claimed area for R&D tax relief, but it is also one of the most complex. Determining whether software activities qualify and align with the supporting legislation and guidance is not always straightforward. HMRC’s guidance in CIRD81960 provides clarification on how the DSIT Guidelines should be applied when assessing software projects.
What is CIRD81960?
CIRD81960 is HMRC’s guidance that bridges the general DSIT R&D guidelines and the specific realities of software development. Rather than creating new rules, it takes the existing framework of advances in science or technology, technological uncertainty and project boundaries and explains how they apply to software projects.
The two ways software qualifies for R&D tax relief
A key point highlighted by HMRC is that software can qualify for R&D in two different ways.
A tool used within a wider R&D project
The first covers activities within an R&D project to create or adapt software, materials or equipment needed to resolve the scientific or technological uncertainty, provided that the software, material or equipment is created or adapted solely for use in R&D. For instance, where software is created or adapted solely as a tool for direct use in a larger R&D project, then development of the software will qualify as part of that R&D project.
The software need not, in isolation, seek a specific advance in computer science or information technology; the R&D project may be seeking an advance in another field of science or technology, but if the software directly contributes to that larger R&D project, it will qualify as R&D.
If software development is the R&D goal
The second way software qualifies is the development of software as the goal of the R&D project. The guidance on R&D projects in CIRD81900 applies to a software project in the same way.
In this situation, the development must aim to achieve an advance in science or technology within the field of computer science or software engineering.
HMRC emphasises that the advance must contribute to overall knowledge or capability in the field, rather than simply providing a new feature or commercial improvement for a particular business. This may involve developing new algorithms, improving the efficiency of complex systems, or overcoming technical limitations associated with performance, scalability or interoperability.
The key question when assessing software R&D is whether the work involved resolving genuine technological uncertainties. This occurs when a competent professional working in the field cannot readily determine how to achieve the intended technological outcome. Developers may therefore need to experiment with different approaches, architectures or processing methods to achieve the required performance, reliability or scalability.
What software development activities don’t qualify for R&D tax relief?
HMRC makes it clear that routine software development activities will not qualify. Work such as configuring existing systems, implementing standard integrations, or developing applications using well-established tools and frameworks is usually considered routine engineering rather than R&D. While these activities may require technical skill and experience, they do not represent an advance in science or technology.
HMRC’s examples of qualifying software R&D activities
Understanding these distinctions is essential when assessing whether a software project contains qualifying R&D activities and when preparing robust claims that align with HMRC expectations.
HMRC provides the following examples of qualifying R&D activities for software development:
- Developing new or improved data architectures that cannot be achieved with readily deducible solutions, e.g., pushing beyond the boundaries of existing readily available database engines.
- Extending software frameworks (e.g., software development kits, or software libraries) beyond their original design, where knowledge of how to extend these was not available or readily deducible at the time.
- Attempting to partially or fully solve a technological uncertainty that is documented as a known subject of research by computer scientists (e.g., there are relevant and contemporaneous research papers on that specific scientific or technological issue).
Further information and guidance from HMRC can be found here.
However, the above is not an exhaustive list, and additional activities could potentially qualify.
Talk to an R&D tax specialist today
To understand whether your activities qualify and to ensure your claim is accurately prepared, speak to one of our R&D tax specialists, who have extensive experience in submitting R&D software claims.
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