R&D relief
Can I claim R&D tax relief on software development?
Plenty of people will tell you that building custom software is research and development. HMRC has written down, in its own compliance guidance, that it generally is not. Here is the actual test, the current rates, and the deadline that quietly voids more claims than any argument about eligibility.
The sentence that decides most cases
“Creation of new functionality and computer environments alone will not qualify for relief” — and will not qualify “if it represents routine replication of existing methods in a new context.” Last updated 23 January 2025.
Read that against what most software projects are. You chose a known stack, used known patterns, and solved a problem that was new to your business. All of that can be difficult, valuable and expensive without being R&D, because the published test is not about effort or originality to you.
The statutory definition sits in Guidelines issued under section 1006 of the Income Tax Act 2007. Two paragraphs do the work:
- An advance in science or technology means an advance in overall knowledge or capability in a field — and “overall knowledge” means what is publicly available. Paragraph 22 says routine analysis, copying or adaptation of an existing product or process does not advance it, even if it is new to the company.
- Technological uncertainty exists where it is not readily deducible by a competent professional in the field whether something is feasible, or how to achieve it. Paragraph 14 excludes uncertainties a competent professional could readily resolve, and excludes fine-tuning that does not materially affect the underlying technology.
HMRC also tells you to separate commercial uncertainty from technological uncertainty. “We did not know if customers would use it” is commercial. And the project boundary is narrower than people assume: qualifying work starts when work to resolve the uncertainty starts, and ends as soon as the uncertainty is resolved. Everything after that is just building.
The clearest example HMRC publishes
From the Guidelines: software for analysing market research data is not R&D. Adapting it to analyse customer spending patterns instead is also not R&D. Something was built, something was new, and neither fact helps.
The flip side, also from HMRC: work to create or adapt software needed to resolve a genuine technological uncertainty does qualify, and a routine method can qualify where it directly contributes to resolving one. Software engineering is judged on exactly the same criteria as any other field — no better, no worse.
What it is worth, if you do qualify
For accounting periods beginning on or after 1 April 2024 the old SME and RDEC schemes are gone, replaced by two:
| Scheme | Who | Mechanism |
|---|---|---|
| Merged scheme | Everyone else | 20% expenditure credit on qualifying spend. The credit is taxable. |
| ERIS | Loss-making SMEs with R&D intensity of 30% or more | 186% total deduction, plus a payable credit of up to 14.5% of the surrenderable loss. Not taxable. |
HMRC’s own headline for ERIS is “£27 from HMRC for every £100 of R&D investment”. For the merged scheme, because the credit is taxable, the net is roughly 16.2% for a loss-maker taxed at the 19% small profits rate and 15.0% at the 25% main rate. Those two percentages are my arithmetic on HMRC’s rates, not figures HMRC publishes.
Two conditions that pages quoting “up to 27%” leave out, and which routinely make the real number smaller: the surrenderable amount is the lower of the enhanced expenditure figure or the trading loss after the deduction, and both credits are subject to the PAYE and NIC cap unless exempt. So 27% is a ceiling, not an outcome.
The intensity test, incidentally, is 30% for periods beginning on or after 1 April 2024 — it was 40% before. It is measured across the claimant and every company connected to it on at least one day in the period, which catches groups out.
The deadline that voids the claim
This is the most expensive thing on this page, so it gets its own heading.
| Thing | Deadline |
|---|---|
| Claim notification — first-time claimants, and anyone whose last claim was more than 3 years earlier | 6 months after the end of the period of account |
| The claim itself | Up to 2 years after the end of the accounting period |
Those two numbers are the trap. A company that hears about R&D relief twelve months after its year end is comfortably inside the two-year claim window and permanently outside the six-month notification window. HMRC’s guidance is blunt about the consequence: the claim “will be invalid”. There is no late-notification relief.
Separately there is the Additional Information Form, mandatory for claims since 8 August 2023. It must be submitted before the Company Tax Return, or on the same day but first. If the return goes in without it, HMRC removes the R&D claim from the return. You need a named senior internal contact responsible for the claim, every connected company, and a technical narrative per project — the baseline, the advance sought, the uncertainties and how you tried to overcome them.
If an agency built it, who claims?
The merged scheme rewrote this. The general rule in HMRC’s manual is that only the party who takes the decision to undertake or initiate the R&D can claim.
| Situation | Who claims |
|---|---|
| You commissioned the work and specifically contemplated that this R&D would be done | You, the customer |
| The studio took the initiative to do R&D that was not contracted out to it | The studio |
| The customer is outside the UK tax charge, or otherwise an irrelievable client | The studio, even though it is not the decision-maker |
“Intended or contemplated” is a real hurdle. HMRC says it goes beyond mere awareness that R&D will take place and requires a specific appreciation of what R&D will be done. If your contract says “build us an app” and nothing about the technical unknowns, that is a weak position a year later. Write the uncertainty into the statement of work while everybody still remembers what it was.
Why HMRC is looking hard at this
Because the numbers have been bad. HMRC’s latest published estimate of error and fraud across Corporation Tax R&D reliefs is 6.4%, or £493 million, for 2023-24 — down from 17.6% in 2021-22, which tells you how severe it was.
In HMRC’s random enquiry work on 2021-22 SME claims, the sector it labels “Information” produced 22,200 claims worth £1.8bn, of which 56% were compliant and an estimated 22% of claim value was non-compliant. HMRC does not define that sector as software or IT and publishes no software-specific figure, so take it as the nearest available proxy rather than as a statistic about your industry.
The practical consequence is that compliance-check coverage rose from 10% to 17% in a year, and 77% of checks in 2023-24 required an adjustment. A weak claim is no longer a free option.
Sources. Scheme rates, ERIS conditions and the intensity threshold: GOV.UK, the merged R&D expenditure credit scheme and enhanced R&D intensive support, last updated 8 January 2026, and HMRC manual CIRD123000. The “£27 per £100” figure is HMRC and HM Treasury’s, from the ERIS policy paper of 23 November 2023. The 16.2% and 15.0% net figures are my arithmetic on HMRC’s rates. Definition of R&D: DSIT Guidelines, 7 March 2023, paragraphs 3, 6, 12, 13, 14, 20 and 22, and the software examples in HMRC manual CIRD81900. The quoted compliance guidance: HMRC Guidelines for Compliance GfC3, part 4, last updated 23 January 2025. Claim notification and the Additional Information Form: GOV.UK guidance last updated 31 October 2024 and 26 September 2025. Contracted-out R&D: HMRC manual CIRD161000. Error and fraud: HMRC Annual Report and Accounts 2025 to 2026, and HMRC’s approach to R&D tax reliefs 2023 to 2024. All retrieved 9 October 2026. This is a description of published material, not tax advice — I am not an accountant, and a claim should go through one.
Building something genuinely hard?
If there is real technical uncertainty in what you are building, it is worth documenting as you go rather than reconstructing it a year later. Happy to tell you which parts look like they qualify.
Start here →