R&D Tax Relief

R&D Tax Relief

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Morning All

Hope anybody can advise?

A company creates its own industry specific software. The software is used for recording jobs / arranging transport / various reporting / depot management / vehicle management (mileage etc) .

There are ongoing staffing costs directly associated with maintaining and upgrading this software, as well as direct IT equipment. Can these costs be claimed for R&D relief?

Many Thanks

John 

Replies (11)

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By Tonykelly
12th Sep 2012 10:57

R & D costs only

you can claim the R & D costs, but the costs associated with maintenance would not come within the definition of R & D.

 

 

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By mrme89
12th Sep 2012 11:32

Thank you for the quick response.

If I have understood you correctly…

If the IT dept consists of 3 people:

1 Developer £60k

2 General IT Tech £70k

Only the developers salary can be claimed @ £60k as his only job is solely the development of the software, i.e. no input in the maintenance.

Also, if for example a new server is required due to a large much improved release, could the cost of the new sever be included?

Is this correct?

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By Tonykelly
12th Sep 2012 11:48

R & D capital expenditure

You can claim 100% of the cost of capital equipment used in R & D.

Not as beneficial as revenue expenditure.

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By mrme89
12th Sep 2012 11:54

Many thanks for your response.

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By merlyn
12th Sep 2012 14:07

Additional costs

You can also claim a percentage of the general tech staffs costs if they are involved in testing software releases and you may also be able to claim for management staff costs if they are involved in managment of the project itself.

You probably won't be able to claim all 60k of the developers costs as not 100% of what they are doing will qualify as R&D, but you can also include costs for any software required for the development.

My background is software development and I've submitted over 100 successful R&D claims for software companies, so if you have any more questions feel free to PM me and I'll assist if I can.

 

 

 

 

 

 

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By Stratfan
12th Sep 2012 14:21

Does it qualify?

Don't forget there's a more fundamental question which is whether the project is eligible as R&D for tax purposes in the first place. The project must be seeking an advance in its field, i.e. software, and be attempting to resolve technological uncertainty. As merlyn says, it is unlikely that all the developer's costs will qualify, as there are likely to be aspects of the development work that do not contribute to the resolution of technological uncertainty.

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By merlyn
12th Sep 2012 14:34

does it qualify ?
As Stratfan says the HMRC would need to see how your project meets their guidelines in terms of R&D tax relief, usually by writing a technical summary.

Also worth mentioning you can claim for the past 2 accounting periods.

Again if you need any advice please feel free to PM me.

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By Leyton UK
13th Sep 2012 15:18

Assess the activities involved

 

Hi John

Your situation is quite common.

The exact answer regarding which costs would qualify depends on the eligibility of the activities undertaken to create the software. This is essentially what HMRC focus on when reviewing R&D tax relief claims. To address this, you need to assess the underlying technologies deployed, rather than just the functionalities, and evaluate them against the legislation. 

Assuming there are qualifying activities, it is likely that major upgrade costs associated with staff time would qualify. Maintenance costs are typically considered ineligible. However, there can be scope to include them if R&D activities have taken place as part of the maintenance. 

Capital equipment costs are not eligible for the R&D tax relief but you can avail of a tax reduction through the 100% first year capital allowances.

Hope that helps. If you need any further guidance, please let us know!

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By stevekesa
01st Oct 2012 15:22

R&D Tax Credit Accounting Treatment

Hi All

Hoping you can further on R&D related question  

Once an R&D tax credit claim has been accepted by HMRC (and monies offset against o/s PAYE)  is the accounting treatment  :-

Credit : Salary/Nic on the P&L 

Debit : Paye Payable

Or would this be treated some other way , eg  exceptional item ?

Many Thanks

 

 

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By alattax
01st Oct 2012 16:15

It's a credit in the taxation (p&l) account.

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Replying to Matrix:
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By stevekesa
01st Oct 2012 16:40

Thank-you Alatatax,

Thank-you Alatatax,

Another quick one , I hope

If the situation is the CT600 has already been filed with tax payable ,9 months after ARD ( CT not yet paid)

but the amended CT600 will reverse the payable to nil is there any penalty applied on subsequent rejection of an R&D claim ?

Many Thanks

 

Steve

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