R&D Tax Credits for Software Development
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
Software is the sector where R&D claims are most often made and most often reduced. The relief applies to software development on exactly the same terms as to anything else, and the failure rate comes from how the work is described rather than from what the work was.
Since the 2023 reforms the cost categories have improved for software companies, with data licences and cloud computing explicitly claimable. The narrative requirements have tightened at the same time.
Software Claims After the 2023 Reforms
Two changes matter here. Data licences and cloud computing became qualifying costs, including data storage, hardware, operating systems and platforms, which was overdue for companies whose largest development expense is compute rather than desks. And the additional information form made the technical narrative a formal, structured submission rather than a document produced on request.
That second change is why software claim volumes fell. A narrative that could previously sit in a folder unread now has to answer three specific questions on a form before the claim is accepted at all. The form itself is covered on the additional information form page.
Uncertainty in a Codebase
The hardest part of a software claim is stating the uncertainty in technological rather than commercial terms. Building a product no competitor offers is commercial novelty. Being unable to establish, from published knowledge or from the experience of your own senior engineers, whether a given behaviour was achievable at a given scale is technological uncertainty.
The uncertainties that hold up tend to be about limits rather than features: throughput, latency, consistency under partition, accuracy of a model on data of a particular quality, or interoperability with a system whose behaviour is undocumented. The uncertainties that fail tend to be descriptions of what the software does.
Choosing between known frameworks, integrating documented APIs and building a familiar architecture in a new domain are all skilled work that generally falls outside the relief. Where a project mixes both, the claim has to isolate the part that was uncertain rather than claiming the sprint total.
Cloud, Data and Licence Costs
Software claims often sit against a small payroll and heavy external spend, which raises two restrictions at once. Payments for externally provided workers and unconnected subcontractors are limited to 65%, and the payable credit is capped at £20,000 plus 300% of relevant PAYE and National Insurance liabilities unless the company is exempt.
For a venture-funded company with an outsourced engineering team, the PAYE cap frequently determines the cash outcome rather than the headline rate. It is worth modelling at the start of the accounting period, while the payroll position can still change.
HMRC lists the qualifying categories, including data and cloud, in its guidance on R&D costs you can claim. The British Business Bank publishes a plainer eligibility summary for companies claiming for the first time.