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Research and Development tax credit

Research and Development tax credit

We have a client who is involved in developing Software principally in the simulation industry. Our client is engaged by a number of blue chip companies to carry out its work and the nature of the contracts are such that our client receives payment from them for the time incurred by its employees. The intellectual Property is retained by my client and no specific instructions are given to our client by its customers. We have claimed relief for R&D under the SME guidelines. However, whilst the Revenue accept that what our client does is R&D they are denying relief citing Section Schedule 20 Para 3(6) FA2000. From 1 April 2002 we should be able to get relief under the large companies legislation but we are looking at a period prior to this.

Can anyone help?

Steve Butler


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16th Dec 2004 17:27

I have found that by default the Inland Revenue will generally refuse R&D tax credit. This is mainly due to the fact that they do not understand the nature of the work your client does.

If you are absolutely certain that your client qualifies for the R&D tax credit, then persevere. I was recently involved with a software company who claimed R&D tax credit and wrote a 60 page document showing that the work was innovative, ground breaking and was supported by comprehensive costings and design schedules. Note that general bespoke features and "tinkering" with existing software is not allowable which is where a majority of software companies fall down with the R&D tax credit.

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