Which UK Software Development Activities Qualify?
Note: R&D Tax Credits rules changed significantly from April 2023 (RDEC rate increase) and April 2024 (merged SME/RDEC scheme proposed). Always consult a specialist R&D tax adviser — HMRC enquiry rates are increasing. This guide provides general information only.
| Activity Type | Qualifies? | Evidence Required |
|---|---|---|
| Building novel AI/ML algorithms | ✅ Yes | Document the specific uncertainty, alternatives tried, why standard approaches failed |
| Custom blockchain/cryptography | ✅ Yes | Technical specification of novel protocol, academic papers showing state of the art |
| NHS FHIR R4 novel integration | Likely — depends on novelty | Document which integration problems were not solved by existing tooling |
| Standard CRUD web application | ❌ No | No technological uncertainty — standard techniques apply |
| Implementing existing algorithms | ❌ No | Adaptation of known techniques is not R&D |
| Developing new quantum-resistant cryptography | ✅ Yes | Clear technological uncertainty, novel contribution |
| HealthTech with MHRA novel approach | ✅ Yes | DTAC clinical safety as evidence of technological uncertainty |
| Performance optimisation (novel) | Possibly — depends on novelty | Document why standard profiling/optimisation did not work |
SME Scheme vs RDEC — Which Applies?
| Criteria | SME Scheme | RDEC (Large Company) |
|---|---|---|
| Company size | Under 500 staff AND under £86M turnover AND under £74M balance sheet | Over SME thresholds, or subsidised/subcontracted R&D |
| Enhanced deduction | 186% of qualifying spend deductible | N/A |
| Payable credit (loss-making) | 10% of qualifying spend (cash payment) | 20% of qualifying spend above corporation tax liability |
| Rate from April 2024 | SME/RDEC merged scheme proposed — consult adviser | 20% RDEC rate (April 2023 onwards) |
| Staff costs qualifying | Salary + NIC + pension contributions on R&D time | Same |
| Subcontractor costs qualifying | 65% of subcontractor cost (if UK-based) | 65% of external worker cost |
What Costs Qualify in Software Development?
Staff costs: salary, employer NI, employer pension for time spent on qualifying R&D (proportion of total time).
Software and data costs: software licences used directly in R&D activities (AWS credits for ML training, specialist libraries).
Subcontractor costs: 65% of payments to UK R&D subcontractors (ClickMasters clients can claim on a portion of ClickMasters invoices if qualifying R&D).
Cloud computing for R&D: AWS/Azure costs for training ML models, running experiments, prototype infrastructure.
NOT qualifying: software purchased to use (not develop), routine testing, bug fixes of existing software, standard product development.
HMRC R&D Enquiries — What to Expect Post-2023
ClickMasters client note: Projects involving novel AI/ML development, novel NHS FHIR integrations, or original cryptographic implementations may qualify. ClickMasters provides technical project descriptions that satisfy HMRC Additional Information Form requirements for qualifying projects — ask about this at project kickoff.