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Software Activities in the R&D Tax Incentive
The Regulators have issued additional software guidance, namely ‘Software activities in the R&D Tax Incentive’ and ‘Guide to common errors’ (both of which were released on 21 February 2019).
The Guidance is notable in that it references commentary from the Frascati Manual and thereby introduces additional concepts and criteria into the conversation about the type of software development that should qualify for R&D tax treatment.
In this respect, the Guidance cites some examples of software-related activities that Frascati considers to be routine and therefore not ‘’R&D’’ in nature including:
- the development of business application software and information systems using known methods and existing software tools
- adding user functionality to existing application programs (including basic data entry functionalities)
- the use of standard methods of encryption, security verification, and data integrity testing.
The lawyer in me cannot help but be somewhat irked by the reliance on non-legislative material and the fact that it is given almost as much weight as the plain ordinary meaning of the words in the statute itself. To be fair, though, the Regulators’ viewpoint (perhaps quite rightly) is that such activities would surely be within the capabilities of just about any competent software engineer, who would not, therefore, need to conduct any ‘’experimental’’ activity to acquire any new knowledge in order to complete such tasks.
In the overall scheme of things as well, the Guidance is welcome not least because it provides still further context that can inform conversations about what kind of software dev benchmarks most strongly benchmarks for claim under R&D tax.