Most guides to R&D tax credits for software companies are still describing a scheme that no longer exists. The SME and RDEC schemes were replaced for accounting periods beginning on or after 1 April 2024, and a separate rule introduced in 2023 now invalidates a claim entirely if you miss a deadline that falls six months after your year end. This page covers the rules as they actually apply to a UK software company in 2026.
The deadline most companies miss. If this is your first R&D claim, or your last one was more than three years ago, you have to tell HMRC you intend to claim within six months of the end of your period of account. Miss that and the claim is invalid, however good the R&D was. It catches companies who do the work in year one and only find out about R&D relief in year two.
Which Scheme You Are Actually On
For accounting periods beginning on or after 1 April 2024, the old SME R&D relief and RDEC schemes were merged. There are now two routes, and which one applies is not a choice you make:
- The merged scheme R&D expenditure credit. The default for almost everyone. It gives a credit worth 20% of your qualifying costs. The credit is treated as trading income, so you pay Corporation Tax on it, which is what makes the headline rate and the money you actually keep two different numbers.
- Enhanced R&D intensive support (ERIS). For loss-making SMEs where qualifying R&D is at least 30% of total expenditure. It gives an extra 86% deduction on top of the normal 100%, so a 186% total deduction, and a payable credit worth up to 14.5% of the surrenderable loss.
If your company year ends on 31 March, the first period under the merged scheme was the year ended 31 March 2025. A December year end moved across for the year ended 31 December 2025. By now almost every claim being filed is a merged scheme claim, but a late or amended claim for an earlier period still runs under the old rules, which is why out of date guidance is still circulating.
The 30% intensity test for ERIS is the one people get wrong. It is R&D spend as a proportion of total expenditure, not of turnover and not of payroll. A company that spends heavily on sales and marketing can fail it while feeling like an R&D business.
The Six Month Deadline That Invalidates Claims
For accounting periods beginning on or after 1 April 2023, some companies have to submit a claim notification form before they can claim at all. You need one if:
- you are claiming R&D relief for the first time, or
- your last claim was made more than three years before the last day of the claim notification period.
The window opens on the first day of your period of account and closes six months after the end of it. So for a year ended 31 December 2026, the notification has to be in by 30 June 2027. HMRC's position is blunt: if you do not notify, the claim is invalid.
This is the single most common way a genuine claim is lost now. The pattern is always the same. A company spends a year building something difficult, files its accounts, and only when it changes accountant or reads something does it discover R&D relief exists. By then the notification window for that year has closed and the money is gone. There is no appeal against having simply not told HMRC in time.
If you have claimed in the last three years you are generally exempt from notifying, with two exceptions worth knowing: it does not help you if HMRC rejected that earlier claim, or if the only reason you have a recent claim is that you amended a pre April 2023 return after the rules changed.
Does Software Development Qualify for R&D Tax Credits?
More software development work qualifies for R&D tax relief than most developers assume, and a lot less qualifies than most R&D claim firms will tell you. The statutory test is whether you are seeking an advance in science or technology by resolving scientific or technological uncertainty.
Two things follow from that wording, and they are where claims are won and lost:
- The advance has to be in the field, not in your company. If a competent professional developer could have told you how to do it, it is not an advance, however new it was to your team. Learning a framework you had not used before is not R&D.
- The uncertainty has to be technological, not commercial. Not knowing whether users will like a feature is commercial uncertainty. Not knowing whether it is technically possible to hold a given latency at a given scale is technological uncertainty.
Software development work that usually qualifies
- Building or materially improving an algorithm where the approach was not readily deducible
- Solving scalability, throughput or latency problems that published methods do not solve
- Training or adapting machine learning models where the outcome was genuinely uncertain
- Making systems work together where no documented integration path existed
- Work on data processing or storage that goes beyond applying an existing product as designed
Software development work that usually does not qualify
- Standard create, read, update and delete applications
- Assembling existing libraries, frameworks or APIs in the way they were designed to be used
- Routine bug fixing, maintenance and refactoring
- Interface and design work, however much of it there was
- Configuring or customising off the shelf software
- Market research, user research and testing that is not resolving a technical unknown
A useful sense check. If you can describe what was uncertain, what you tried, and why the answer was not on Stack Overflow, you probably have a claim. If the honest description of the project is "we built it and it worked", you probably do not, and filing anyway is how companies end up in an HMRC enquiry.
Which Software and Cloud Costs Qualify for R&D Tax Relief
Once you have a qualifying project, the claim is built from the costs attached to it. For a software company the bulk of it is almost always staff.
| Cost type | What you can claim |
|---|---|
| Staff costs | Salaries, wages, bonuses, employer pension contributions, secondary Class 1 National Insurance and staff training, apportioned to the time spent on qualifying R&D |
| Externally provided workers | 65% of the payment where the provider is unconnected. For a connected provider, the lower of the payment or their actual costs |
| Contracted out R&D | 65% of the payment where the contractor is unconnected, subject to the rules on who is entitled to claim |
| Software | Licence fees for software used in the R&D, and a reasonable share where it is only partly used for R&D |
| Data licences and cloud computing | Qualifying for accounting periods beginning on or after 1 April 2023. Covers data access licences and cloud services including storage, hardware, operating systems and platforms |
| Consumables | Power, materials and other items used up in the project |
The cloud and data category is the one that changed the maths for SaaS businesses. AWS, Azure and Google Cloud spend attributable to qualifying R&D is claimable, which for a data heavy product can be a material part of the claim. The restriction is that it has to be attributable to the R&D itself. The cost of running your live production platform for paying customers is not R&D, it is the cost of delivering your service, and treating your whole cloud bill as R&D spend is one of the quicker ways to attract an enquiry.
The same applies to software licences. Tooling bought for a qualifying project qualifies. The company wide subscription to a design tool does not become R&D spend because designers occasionally touch the project.
If Your Developers Are Not In The UK
This is the change that has cost software companies the most money and is still the least understood.
For accounting periods beginning on or after 1 April 2024, payments for externally provided workers only qualify where the earnings are qualifying earnings, which in practice means someone is accounting for UK PAYE and Class 1 National Insurance on them. Contracted out R&D is restricted on the same basis. If your development team sits outside the UK and is not on a UK payroll, that spend has largely stopped qualifying.
There is an exception, and it is narrower than people hope. Overseas expenditure can still qualify where there are conditions necessary for the R&D that cannot be replicated in the UK. Geography, regulatory environment and physical conditions can meet that test. What explicitly does not:
- Cost. That the work is cheaper overseas is not a qualifying reason.
- Availability of workers. That you could not find or could not afford the developers here is not a qualifying reason either.
For most software companies those are exactly the two reasons the team is offshore, so the exception does not apply. If you have been claiming for an offshore development team on the basis of pre 2024 advice, that is worth reviewing before the next claim rather than after HMRC asks.
If You Build Software For Clients, Who Claims?
Agencies and development shops run into this constantly, and the answer changed for periods beginning on or after 1 April 2024.
Where R&D is contracted out, the customer claims it only if it is reasonable to assume the customer intended or contemplated that R&D of the sort actually carried out would be done. That is a higher bar than the customer knowing the project was hard. HMRC's guidance is that the customer has to specify the required R&D, understand it and be able to articulate its nature. Merely listing the challenges and constraints of a project is not enough.
So the contractor can claim, rather than the client, where:
- the client knew the work might require R&D but was indifferent to whether it did
- the developer identified the technical problem and decided to solve it, going beyond what the client specified
- the client is not able to claim at all, for example an overseas company, a charity or a government department
In practice this means a development agency that is handed an outcome and left to work out how to achieve it often has a claim it did not know it had. It also means an agency claiming for work its client has specified in technical detail, and is itself claiming for, has a problem. It is worth knowing which side of that line each contract sits on before either party files.
What You Actually Get Back
Take a company spending £100,000 on qualifying R&D costs.
| Situation | Route | Rough benefit |
|---|---|---|
| Profitable company | Merged scheme, 20% credit, taxed as trading income | About £15,000 kept after Corporation Tax at 25% |
| Loss making, R&D under 30% of total spend | Merged scheme, credit received net of tax | About £15,000 |
| Loss making, R&D at least 30% of total spend | ERIS, 186% deduction and 14.5% payable credit | Up to about £27,000 as cash |
These are illustrations rather than quotes. The number that matters is what reaches your bank account, and that depends on your tax position, whether you have losses to surrender, and how much of your spend genuinely qualifies. The gap between the profitable and R&D intensive outcomes is why the 30% intensity test is worth calculating properly rather than estimating.
Note what the 20% headline is not. It is not 20% of your development budget. It is 20% of the costs attributable to the qualifying projects, after the 65% restriction on unconnected contractors and externally provided workers, and after removing anything that is business as usual.
How To Claim, And The Form That Has To Come First
The claim goes in your Corporation Tax return, but two things have to happen around it in the right order.
- Claim notification, if you are a first time or returning claimant. Within six months of the end of your period of account. Miss it and nothing below matters.
- The additional information form. Mandatory for all claims made on or after 8 August 2023. It has to be submitted before, or on the same day as, the Corporation Tax return. If the return goes in first, HMRC removes the R&D claim from it and you may not be able to make a valid claim for that period at all.
- The CT600 and computations, with the claim included.
The additional information form is where the technical case is actually made. It asks for your UTR, PAYE reference, VAT registration and SIC code, the details of a named senior internal R&D contact, and the details of every agent involved. For each project described it wants the field of science or technology, the baseline level of knowledge, the advance you were seeking, the uncertainties you faced and how you tried to overcome them.
How many projects you have to describe depends on how many you have:
- One to three projects: describe all of them
- Four to ten: describe at least three, covering at least 50% of the qualifying expenditure
- More than ten: describe at least three covering 50% of the costs, or the ten with the highest costs
You have two years from the last day of your period of account to make or amend a claim. That is the outer limit, not a target. Claims assembled two years after the fact rely on people remembering what was uncertain about a project, which is precisely the thing HMRC will test.
Why Software R&D Claims Get Rejected
HMRC has been checking R&D claims far more closely since 2023, and software claims get more attention than most because the sector was where the worst of the claim farming happened. The failures we see repeat:
- No claim notification. Fatal, and nothing can be done afterwards.
- The return filed before the additional information form. Also fatal for that period.
- A technical narrative written by someone who is not technical. If the description could apply to any software project, it will not survive an enquiry. The advance and the uncertainty have to be specific.
- The whole development budget claimed. Including routine build, maintenance and design work in the claim undermines the parts that did qualify.
- Offshore costs claimed on the old basis. See above. This is the most common inherited error in claims we review.
- No time records at all. Reasonable estimates are accepted, but an apportionment nobody can explain is not an estimate.
A rejected claim is worse than no claim. It can mean repaying credits already received, penalties on top, and losing the three year exemption that would have saved you notifying next time.
Common Questions
It can, but not all of it does. The work has to seek an advance in science or technology by resolving technological uncertainty. Building new algorithms, solving scalability or performance problems that published methods do not solve, and machine learning work with genuinely uncertain outcomes usually qualify. Standard CRUD applications, assembling existing libraries as designed, routine maintenance and interface work usually do not.
Six months after the end of your period of account. It applies to accounting periods beginning on or after 1 April 2023, and you need to submit it if you are claiming for the first time or your last claim was more than three years before the end of that window. If you do not notify in time, HMRC treats the claim as invalid.
Usually not, for accounting periods beginning on or after 1 April 2024. Payments for externally provided workers now have to relate to qualifying earnings subject to UK PAYE and Class 1 National Insurance. Overseas spend qualifies only where conditions necessary for the R&D cannot be replicated in the UK, and cost and the availability of workers are both specifically excluded as reasons.
Yes, for accounting periods beginning on or after 1 April 2023, where the cost is attributable to the qualifying R&D. That covers cloud storage, hardware, operating systems and platform costs, along with data access licences. It does not cover the cost of running your live platform for paying customers, which is a cost of delivering your service rather than of doing R&D.
The merged scheme credit is 20% of qualifying costs, but it is taxed as trading income, so on £100,000 of qualifying spend a profitable company keeps roughly £15,000. A loss making company whose R&D is at least 30% of total expenditure can use ERIS instead and receive up to around £27,000 in cash on the same spend.
It depends on whether the client intended or contemplated that R&D of the sort carried out would be done. If the client specified the R&D, understood it and could articulate it, the client claims. If the client set an outcome and was indifferent to how you got there, or you identified and solved the technical problem yourself, the contractor claims. It is worth checking which applies before either party files.
Two years from the last day of your period of account. The practical limit is usually tighter than the legal one, because a first time claimant also needs to have submitted a claim notification within six months of that period end, and that window will normally have closed first.
Not sure whether your development work qualifies?
We work with UK software companies on R&D claims, including the ones that turn out not to have a claim worth making. Fixed fees, never a percentage of the claim. If you are a first time claimant, the first thing to check is whether your notification window is still open.
See how R&D claims work with usFigures and rules on this page were checked against HMRC guidance on gov.uk on 21 September 2026. R&D rules have changed repeatedly since 2023, so check the date on anything you read about them, including this. This is general information about the scheme and not advice on your own claim.