Sector Overview – Software

Within the latest HMRC statistics on R&D tax credits, we can see that 24.8% of all claims made under the SME scheme, were for companies operating in the “Information and Communications Technologies” (ICT) sector. This accounts for 25.9% of the total value of claims.
The average claim value was £51,075.

Research and Development Tax Credits within the the Software industry

By its very nature, developing new types of software involves a high number of technological uncertainties. As a result, software developers must overcome these challenges on a daily basis, as a routine part of their jobs. Being eligible for R&D tax credit centres around two key areas. You need to be either:

Producing new or improved products.

Design and development of a product involving some degree of uncertainty for which the answers were not obvious.

Examples of scientific and technological uncertainties in the development of software

“Off the shelf” software modules
Even when using “off the shelf” components and add-ons, developers will still need to incorporate these into the main program. As a result, this task often involves technological uncertainty. This is because the developer will often be unsure whether the components will react with each other. Therefore, developers will often spend a lot of time researching and developing ways to make this integration work as planned.
New software modules
When there are no “off the shelf” solutions available, companies will often need to design their own. This will often involve a great deal of design and experimentation. During testing, there will often be further redesign needed to achieve the desired outcome. Often, the final program will only bear a passing resemblance to the original design.
Architectural issues
Even when something may seem very simple at the start, projects can still need a great deal of work. For example, if the system architecture doesn’t produce the correct data to complete the task. In these circumstances, even simple projects can require the rewriting of large amounts of an existing system. In other situations there is a need to create a temporary ‘work around’, all of which can involve technological uncertainties.
Ensuring that products operate with the latest technologies and systems is one of the biggest issues that software developers face. Integration with third party applications, as well as being able to operate securely over networks, is fraught with technological uncertainty. Other challenges can arise from the demand from customers for more integrated systems. Despite these being separate systems, the need for them to communicate with each other is vital.

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