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Software development costs tax deductable for a software company?

Hi,

I am about to spend close to £30,000 on developing a piece of software that I will sell on for profit, I will hire in house for my graphics and contract an outside team for the actual programming to the software. Will these software development costs be tax deductible?

Thanks

Simon

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26th Mar 2012 13:18

Sell what?

Will you sell all the rights to the software, or do you mean that you will license it to end users?

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26th Mar 2012 14:20

Hi,

It's licensing it to end users.

Thanks

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26th Mar 2012 13:54

R&D Tax credits

think of potential for claiming these if you are a Limited Company

 

I have a few easy questions which clarify what may be eligble in software terms for the tax break

 

You can contact me easily

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26th Mar 2012 14:55

Well

If you are developing software with a view to licensing it to end customers, then I would have expected all the development costs to be capitalised into the balance sheet as an intangible asset, and then the asset will be amortised to the P&L in order to match it against the turnover derived from the licences.  The amortisation of intangible assets created post Apr-2002 would be an allowable deduction for tax purposes.

But, that is a bit of a guess on the precise fact pattern and not really a substitute for your accountant doing a review.

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26th Mar 2012 15:33

Don't forget to try to claim Research & Development Tax Credits, which are available in certain circumstances for software

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27th Mar 2012 10:18

R&D

I looked into the R&D thing myself for a similar project.   My distinct impression was that R&D Tax Credits were reserved for expenditure that involved genuinely novel research. (As opposed to just building a better mousetrap).

To quote from the HMRC page...

http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm#4

"Your company or organisation can only claim for R&D Relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability."

 

 

 

 

 

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By merlyn
13th Jul 2012 07:54

R&D Tax Relief

cverrier wrote:

I looked into the R&D thing myself for a similar project.   My distinct impression was that R&D Tax Credits were reserved for expenditure that involved genuinely novel research. (As opposed to just building a better mousetrap).

To quote from the HMRC page...

http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm#4

"Your company or organisation can only claim for R&D Relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability."

Based on the HMRC rules building a better mousetrap may qualify if there are one or more uncertainties at the start of the project.

 

For example if you wanted to build a new type of mousetrap using chemicals to kill the mouse, but you also wanted to make it safe should a child stick it into their mouth and if information about how to create such a mousetrap was not widely available then an uncertainity exists that it may not be possible to create such a product and you have an R&D project. 

It also doesn't matter if someone has already created a product like this before as unless they have released information on how they did it then the uncertainity still exists.

 

 

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27th Mar 2012 11:19

You're right but it is always worth applying the criteria to see if you qualify.Software can be eligible

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By SDyson
25th Jun 2012 17:33

R&D Tax Credits --- check

Bernard is right, it’s best to check.

My addition to the above would be to get a specialist firm to do this checking. From our own experience we know that companies often grapple with various aspects of the claim process - i.e. identifying & qualifying the eligible R&D (the rules change/all claims are different etc.).

Even those companies that have been claiming ‘successfully’ for years often miss valuable opportunities so it may be worth having a short Q&A with a specialist. Most will do this initial contact free and can be later engaged on a contingency basis so there should be minimal barriers to stop a company from checking their position.

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By merlyn
13th Jul 2012 07:47

R&D Tax Relief

Hiya,

 

The firm i work for offer advice to technology firms regarding claiming R&D tax relief.

For R&D you can only claim revenue costs and not those which have been capitalised, however there is a different type of R&D relief for capitalised costs, where you can write them off in a year.

 

Whilst I understand the tax side of R&D, the work my firm does is mainly on writing a technical summary to justify a claim and to help clients work out their qualifying expenditure.

 

If anyone has any questions regarding R&D please let me know and I'll try to answer.

 

Paul

 

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