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SME R&D tax relief - qualifying software costs?

Some software was purchased by staff and reimbursed by the company

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I have a client who has listed several pieces of software that they would like to include in an SME R&D tax relief claim. However, some of lower cost items were purchased by staff and reimbursed by the company. This is OK for VAT purposes as they are all under £250, but I am unsure if it is OK for the SME R&D tax relief scheme and I have not been able to find an answer in HMRC guidance.

It seems to me that these expenses are still software costs, but they may or may not be software licenses owned by the company.

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By Stratfan
04th Aug 2020 10:03

Because of the nature of the cost and the way it was incurred, you have two potential bases for claiming it. Firstly, as software itself, which is a qualifying category under CTA09/Ss1125 & 1126. There is no requirement that the licence is owned by the company, it simply must be expenditure "on software".
The other route is as a staffing cost. Because employee reimbursed expenses are regarded as earnings for tax purposes they fall under the category "staffing costs" under R&D rules. However, HMRC in practice only allow these costs if they are the kind of things that employees normally pay for out of pocket like travel and subsistence. Because of this restriction I would claim the cost under the category of software as above.

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