What Types Of Software Projects Qualify For R&D Tax Credits?

A huge range of software projects are eligible

Driven stir crazy by lockdown-induced boredom, how many times have we thought to ourselves “Thank goodness for modern technology!”

The COVID-19 pandemic has been incredibly tough, changing the way we work and communicate with others possible forever. But technology has meant be can now work from home via Zoom, and chat to our loved ones on FaceTime. Then of course there’s the hours we’ve spent on the computer playing games, while our teenagers hit the Xbox or PlayStation.

Software is hardly a new thing, but the speed and complexity of it is accelerating at an incredible rate. Indeed, the pandemic and subsequent lockdowns have only made us rely on modern software more than ever. But developing such software costs money - which is why software development companies are some of the biggest R&D Tax Credit claimants.

What are R&D Tax Credits?

R&D Tax Credits represent a government-backed tax incentive designed to encourage growth through innovation. The scheme means that a sizeable proportion of R&D costs can be claimed back, either via a reduction in Corporation Tax or a series of cash lump sums.

Projects must seek to make an advancement in science and/or technology, although the project itself doesn’t have to have been successful. Many companies achieve this by creating new products or services, or by improving something that already exists.

All Irish companies in all sectors can claim, and the benefits can easily be worth tens of thousands of euros. For more detail, see our R&D Tax Credits page.

Why software development and R&D Tax Credits go together

The software industry is a hotbed of innovative research and development. Even if a project fails, is wound down or doesn’t achieve what it set out to do, R&D is very likely to have still taken place. This in itself is enough to claim R&D Tax Credits, providing all other criteria are met.

Software development projects usually address a scientific or technological uncertainty as a matter of course. This makes them perfect for an R&D Tax Credits claim. Such work also typically benefits the wider field in which the company operates, and not just the company itself. This again is a major stipulation in claiming the cash.

Generally, software development projects also mean searching for new architecture techniques or new software constructs. Advances will often be made during the design of a piece a software, or at the architectural or algorithmic level. Essentially, the whole point of the work is that it goes beyond routine analysis. Small tweaks are not enough - this is about making wholesale technological changes and bringing them to market.

See our recent blog to discover how R&D Tax Credits have boosted the software industry in Ireland.

The five criteria

A software project absolutely must be innovative - that’s a given. But claimants looking to benefit from R&D Tax Credits also need to ask themselves the following questions:

• Is the work being carried out in an approved field of technology or science?
• Do the activities resolve a technological or scientific uncertainty?
• Is the work investigative, systematic or experimental?
• Is the company aiming to make an advancement in technology or science?
• Do the activities meet with Revenue’s definition of R&D?

General software-based R&D projects that are likely to be eligible

This is not an exhaustive list, however it includes some of the common types of software-related R&D work that typically attracts R&D Tax Credits. For instance the development of:

• New ways to capture, store, transmit, search, retrieve or secure data
• Software that will run new types of computer hardware, particularly if there are conflicts between software and hardware
• New operating systems
• New programming languages, extensions or software development tools
• New software architecture and/or framework
• New technologies for use in application software

Qualifying projects in the wider gaming industry

Again there’s a broad range of R&D activities here that may bring about a claim for R&D Tax Credits. They include:

• Designing algorithms
• Online or mobile gaming
• Simulation and motion capture
• Increasing performance, memory management or processing power
• Adapting software and hardware to work with third party products
• Development in VR and AR
• Image processing and reconstruction

Relevant expenditures may include staff wages, subcontractor and freelancer costs, materials, overheads and equipment. At this point you might find our blog useful: Claiming R&D Tax Credits: Expectations Vs. Reality

Why using the Tax Cloud portal for your claim makes perfect sense

Software development is a key sector for R&D Tax Credits as it is innovative and fast-paced by nature. But working your way through a claim can be daunting to say the least, even for those who’ve done it before. It’s usually time-consuming, complex and easy to make a mistake which is likely to cost you dearly.

The Tax Cloud portal is the perfect answer for companies who are struggling to know where to start. It’s a fully guided, step by step way of putting your claim together so that no costs are missed out. Plus it provides valuable peace of mind that Revenue won’t come knocking.

The portal was developed by the R&D funding experts at Myriad Associates who understand the intricacies of the claims process. We’re always on hand along the way, plus the tool will also help you create the highest quality technical report.

It’s a cost-effective, tailored way to get your hands on the R&D funding your company deserves.

Simply sign up today (it’s free) and follow each of the steps to make your claim. Each step is checked by our experts before you move on, and we’ll make sure your claim is fully optimised for maximum return. Flexible and accessible remotely from any internet-connected device, it’s ideal for anyone looking to claim R&D Tax Credits without even having to leave home.

If you’ve got any questions about R&D Tax Credits or about the Tax Cloud portal in general, feel free to call our Dublin-based specialists on +353 1 566 2001. You can also send us a message and we'll get back to you promptly.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud