R&D in the software industry

Software as a Service (also known as Software on Demand) is centrally located services that provide a flexible alternative to the traditional ‘purchase and download’ programs.

The entire software industry has been revolutionised by the emergence of SaaS. It has been estimated that by 2020, service-enabled software will account for almost 50% of all newly purchased business software.

Due to the nature of this industry, growth can occur rapidly, and often leave certain technologies or software obsolete before they have even reached completion. It has been estimated that, unlike many other businesses, if a software company only grows around the 20% mark annually, they have a 92% chance of ceasing to exist within a few years.

It is therefore vital that research and development (R&D) into SaaS programs is optimised, with the shortest turn around times possible. Whilst still remaining functional and adding value to your business as a whole. Adhering to these two ideals and still completing worthwhile research and development can be an expensive process, but it is vital for your business to grow and prosper.

SaaS businesses can see a large outlay, especially when starting up. Having access to all the benefits and taxable relief schemes available to you may help to mitigate some of these costs, and potentially allow a greater degree of financial freedom with your project.

What is the R&D tax credits scheme?

R&D tax credits are a scheme that could allow you to claim back a portion of the costs associated with qualifying R&D undertakings.  The official guidance from HMRC is: ‘Your company can only claim for R&D tax 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’. In additional HMRC state that, ‘The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.’

This may sound daunting or somewhat restrictive, but in fact there are many different areas of R&D that could qualify for these benefits. A good test for determining if your R&D is eligible is to establish if your development would be something that would not be immediately obvious to a suitably qualified professional. For example, creating a patch to implement a fix that is already known, is unlikely to qualify.

Developments that may qualify for R&D Tax Credits could include:

  • Creating new or improved algorithms to handle performance and reliability within the core functions of the software
  • Developing or modifying tools to assist with workflow
  • Identifying and addressing issues that affect the security of your service
  • Creating new security provisions to ensure that your customer’s data is protected
  • Developing plugins to automate functions that would otherwise require a user interface
  • Researching and developing innovative ways to increase overall front and back end performance

If your company is developing new techniques to deal with ‘big data’ or is looking to advance the accessibility of your software or programs, then it may also be eligible for tax relief under this scheme.

There are two ways for  businesses to claim the relief provided by R&D tax credits. For a company making a profit, you can claim up to 33% of the qualifying R&D expenditure.

For a company making a loss, your tax relief of 33% of eligible R&D costs can be carried forward or surrendered at a rate of 14.5%.

Contact us

Easy R&D provides a professional service which can aid you in the process of claiming R&D tax credits, ensuring that your are in receipt of all the tax relief you are eligible to claim – potentially saving you time, effort and money. Contact your nearest R&D Consultant to see if you can claim on 0800 195 7516.