28 Jan How UK IT and software firms can claim R&D tax relief
Innovation is the lifeblood of the UK’s software and IT sector. From developing bespoke platforms and advancing machine learning models to improving cybersecurity systems, UK tech businesses push boundaries daily. What many do not realise is that much of this work may qualify for R&D tax relief, a government-backed incentive designed to reward genuine innovation.
At CTMP Accountants, we work closely with software and technology-led businesses across the UK to help them identify qualifying activities, prepare compliant claims, and secure the relief they are entitled to. In this guide, we explain how UK IT and software firms can claim R&D tax relief, avoid common pitfalls, and maximise the value of their claim.
Call us on 0208 776 0200 or email info@ctmp.co.uk to speak with one of our chartered accountants.
Talk to us today about maximising your R&D tax relief claim with confidence.
What Is R&D tax relief and Why It Matters for Software Companies
R&D tax relief is a UK government incentive administered by HMRC to encourage companies to invest in innovation. It allows eligible businesses to either reduce their Corporation Tax bill or receive a payable cash credit when they spend money developing new or improved products, processes, or services.
For software companies, this is particularly relevant. Many qualifying projects involve overcoming technical uncertainties, whether that means building scalable architectures, integrating emerging technologies, or achieving performance improvements not readily achievable using existing solutions.
What matters is not whether your project succeeded commercially, but whether it sought to advance science or technology and involved genuine technical challenges. This distinction is critical and often misunderstood by software businesses.
R&D tax credits in the UK: How the Schemes Work
When discussing UK’s R&D tax credits, it is important to understand that there are currently two main schemes:
SME Scheme
This applies to small and medium-sized enterprises with fewer than 500 staff and either turnover under €100 million or a balance sheet total under €86 million.
Under this scheme, qualifying R&D costs can be enhanced for tax purposes, and loss-making companies may be able to surrender losses for a payable tax credit.
RDEC Scheme
The Research and Development Expenditure Credit scheme generally applies to larger companies or SMEs that have received certain types of state aid.
The rules governing R&D tax credits in the UK are detailed, and HMRC scrutiny has increased in recent years. That is why careful documentation and professional oversight are essential.
R&D tax relief for software companies: What Qualifies
One of the most common questions we hear is whether software development really counts. The answer is often yes, provided the work meets HMRC’s criteria.
Examples of qualifying activities under R&D tax relief for software companies include:
- Developing new software architectures where no obvious solution exists
- Creating algorithms to handle large or complex data sets
- Integrating legacy systems with modern platforms where technical uncertainty must be resolved
- Improving performance, security, or scalability beyond existing benchmarks
Qualifying costs may include staff salaries, employer’s NIC and pension contributions, subcontractor costs, cloud computing expenses, and consumables directly linked to the R&D work.
Routine development, cosmetic changes, or projects using readily available solutions without technical challenge will not qualify. Understanding this boundary is key to preparing a defensible claim.
HMRC R&D tax relief eligibility Explained Clearly
To meet HMRC R&D tax relief eligibility, a project must satisfy several core conditions:
- The work must seek an advance in science or technology
- There must be technical uncertainty that a competent professional cannot readily resolve
- The uncertainty must be addressed through a systematic process
HMRC places particular emphasis on the technical narrative. It must clearly explain what the uncertainty was, why it could not be easily resolved, and how your team attempted to overcome it.
At CTMP Accountants, we help translate complex software development processes into clear, HMRC-aligned language. This is essential for compliance and for reducing the risk of enquiries.
How to claim R&D tax relief in UK: Step-by-Step
Understanding how to claim R&D tax relief in the UK is just as important as knowing whether you qualify. The process typically involves:
1. Identifying Qualifying Projects
We review your development work to isolate projects that meet HMRC’s definition of R&D.
2. Calculating Eligible Costs
Only specific costs linked directly to R&D can be included. Accuracy here is critical.
3. Preparing the Technical Narrative
This explains the scientific or technological advance and the uncertainties addressed.
4. Submitting the Claim
The claim is included within your Company Tax Return, supported by detailed documentation.
5. Responding to HMRC if Required
With increased HMRC scrutiny, clear evidence and expert preparation are essential.
Getting your R&D tax relief claim wrong can result in delays, reduced relief, or enquiries. Professional oversight significantly improves outcomes.
SME R&D tax relief scheme: What Software Businesses Should Know
The SME R&D tax relief scheme remains the most relevant route for many UK software companies. It is particularly beneficial for early-stage and scaling tech businesses that are investing heavily in development.
Loss-making SMEs may be able to claim a payable tax credit, providing valuable cash flow at a critical growth stage. Profitable SMEs can reduce their Corporation Tax liability significantly.
However, the rules are evolving, and recent reforms mean claims must be more robust and better evidenced than ever before.
Why Work with an R&D tax relief accountant in the UK
Engaging an experienced R&D tax relief accountant in the UK is no longer optional for most businesses. HMRC has increased compliance checks, particularly in the technology sector.
At CTMP Accountants, we bring:
- Specialist knowledge of software and IT R&D
- A compliance-first approach aligned with HMRC guidance
- Clear, defensible documentation
- End-to-end support from assessment to submission
Our team works collaboratively with your developers, finance leads, and directors to ensure claims are accurate, robust, and optimised without crossing compliance boundaries.
Why Businesses Choose CTMP Accountants
We are proud to support a wide range of UK businesses with complex tax and accounting needs. Our approach is grounded in expertise, transparency, and long-term client relationships.
Key trust signals include:
- Decades of combined professional experience within our senior team
- FCA-regulated and professionally accredited accountants
- A strong track record supporting innovative UK businesses
- Practical, commercially focused advice rather than generic solutions
R&D Qualification Snapshot
| Criteria | Requirement |
| Technical advance | Beyond existing capability |
| Uncertainty | Not easily resolved |
| Process | Systematic investigation |
| Sector | Includes software & IT |
A Final Word on R&D tax relief
For UK IT and software businesses, R&D tax relief is not a loophole or a bonus, it is a deliberate incentive designed to reward innovation. When claimed correctly, it can materially improve cash flow and reinvestment capacity.
The key is accuracy, compliance, and expert guidance.
Speak to our team today to explore how CTMP Accountants can support your next R&D tax relief claim with clarity and confidence. Call us on 0208 776 0200 or email info@ctmp.co.uk.
FAQ: R&D Tax Relief for Software Companies
Does software development qualify for R&D tax relief?
Yes, provided it involves resolving technical uncertainty and advancing technology.
Can startups claim R&D tax credits UK?
Yes. Many startups qualify under the SME scheme, even if they are loss-making.
How long does how to claim R&D tax relief in the UK take?
Typically several weeks, depending on complexity and HMRC response times.
Is HMRC checking claims more closely?
Yes. This is why working with an R&D tax relief accountant in UK is strongly recommended.
What records do we need?
Technical documentation, cost breakdowns, and evidence of qualifying activity.