CIRD82500 - R&D tax relief: categories of qualifying expenditure: software

FA00/SCH20/PARA6

Revenue expenditure incurred on software directly employed in R&D is a category of qualifying expenditure for expenditure incurred on or after 1 April 2004 . Software means computer software. The category is introduced in the SME scheme by FA00/SCH20/PARA6. The same category is adopted for the large company scheme by FA02/SCH12/PARA17 (c).

Use other than for direct R&D

Expenditure on software employed indirectly, for example in the provision of secretarial or administrative services, is not qualifying expenditure.

So, software used by the human resources department for routine work related to the R&D staff would not be included. But the use of software (such as a standard spreadsheet package) by the R&D team to record the results of the R&D would not be excluded, as this would be a direct part of the R&D.

Further guidance on the indirect aspects of R&D is given in the DTI guidelines (see CIRD81990 for the 2000 guidelines and CIRD81900 for the 2004 guidelines).

Apportionments

Where software is only partly employed in direct R&D an appropriate apportionment of the expenditure should be made.

How a suitable apportionment is to be achieved in practice is dependent on the particular facts of the R&D, and the software.

Wherever possible a pragmatic approach should be adopted - for example, an apportionment based on staff numbers may prove most suitable where a particular software product is used by R&D and non R&D staff.

If a company offers a reasonable apportionment basis we do not envisage detailed enquiries being desirable to establish a slightly more accurate alternative.