Research & Development Tax Relief - Information Technology

Within the current economy, the role of Information Technology (IT) has taken centre stage in many business functions. In addition, a large number of firms have undertaken the development of their own IT systems (software/hardware) either as part of mainstream product development or as part of their effort to improve internal processes and operations. Consequently, activities such as software development are not just confined to software houses; indeed firms in the non-IT sectors such as finance, leisure and retail also develop their own software.

Is R&D for the "staff in lab coats"?

There is a common misconception that the term Research and Development (R&D) for tax relief purposes only relates to progressive 'blue sky' research activities. The latest Department of Trade and Industry (DTI) guidelines, published in March 2004, state that R&D for tax relief purposes takes place when a project seeks to achieve an advance in science or technology. This widens the scope of activities that could potentially be categorised as being R&D, i.e. as long as the project(s) can demonstrate an advance that is a departure from conventional knowledge.

Are you losing out?

IT development, whether as part of a mainstream product development or the support function, requires substantial investment of time and money. In addition, such activities often carry major risks and technical challenges. It is therefore not surprising that such development activities require the resolution of technological uncertainties, in addition to the management of risk.

Within the non-IT sector, software development often focuses on improving current processes and/or improving legacy systems in line with current working practices and legislation. This can create challenges which the IT development teams must overcome by formulating an advanced solution to the problem.

It is therefore very likely that regardless of the business sector, IT development activity within a company could be categorised as R&D and qualify for tax relief, enabling further investment in the development activities.

Examples of potentially eligible IT activities

The following is a list of activities that could potentially involve R&D:

integration of telephony and voice technologies

smartcard interfacing with other devices

integration of mobile technologies such as pen-pad or mobile phones and

improvement of processes/operations.

The primary criterion used to determine if an activity or a project qualifies as...