R&D Tax Relief for Software & SaaS Companies

Software is one of the biggest sources of R&D tax relief claims in the UK — and one of the areas HMRC now scrutinises hardest. If your team is solving genuine technical problems (not just shipping features), R&D tax relief for software can return a meaningful share of your development spend. The catch is that HMRC draws a firm line between real technological advances and routine development, and software claims increasingly fail when that line is blurred.

This guide sets out what qualifies for software and SaaS companies, which costs you can claim, how the current scheme works, and how to make a claim that survives scrutiny.

What counts as R&D in software

The tax definition is stricter than most developers expect. A project qualifies only if it seeks an advance in science or technology by resolving scientific or technological uncertainty that a competent professional couldn't readily work out. Crucially, the advance must add to knowledge or capability in the field of software engineering or computer science as a whole — not simply deliver a new feature or commercial improvement for your business.

HMRC's software-specific guidance, CIRD81960, recognises two ways software can qualify:

1. Software built to support a wider R&D project — creating or adapting tools, materials or systems needed to resolve the uncertainty in a larger scientific or technological project.
2. Software as the goal of the R&D itself — where the development aims to achieve an advance within computer science or software engineering.

For a fuller walk-through of the underlying tests, see our guides to qualifying R&D activities and evidencing technological uncertainty.

A 2024 tribunal decision gives useful real-world colour on how this test plays out for software. In Get Onbord Ltd v HMRC [2024] UKFTT 617 (TC), HMRC argued the claimant's AI-driven KYC verification tool wasn't R&D because it was built on existing code and open-source components. The tribunal disagreed: requiring every line of a project to be novel would mean almost no software could ever qualify. What mattered instead was whether the finished capability delivered something not readily available elsewhere, achieved by working through genuine technological complexity — not whether every building block was invented from scratch. The tribunal also confirmed a "competent professional" doesn't need formal qualifications; relevant hands-on experience is enough.

For SaaS teams building on existing frameworks, cloud platforms and open-source libraries — which is nearly everyone — this matters: it's the novelty and complexity of the outcome that counts, not the novelty of every component.

Software & SaaS projects that typically qualify

The work most likely to qualify pushes past what existing tools, frameworks and platforms can readily do:

• Novel algorithms — where the outcome or approach isn't readily deducible (optimisation, matching, routing, novel ML models where success is genuinely uncertain).
• Performance and scalability breakthroughs — achieving throughput, latency or concurrency that established methods can't, e.g. pushing beyond the limits of available database engines.
• New data architectures — designing storage or processing approaches where a competent professional couldn't predict feasibility.
• Complex systems integration — where the integration itself creates technological uncertainty, not just wiring two known APIs together.
• Experimental development within agile sprints — iterations and rapid prototyping do count when they are genuinely resolving a technical uncertainty, not just building planned features.
• Building on open-source or existing tools toward a genuinely new outcome — per the Get Onbord v HMRC tribunal decision, using existing code or platforms doesn't disqualify a project. What counts is whether the resulting feature isn't available elsewhere and required resolving real technical complexity to deliver.

What doesn't qualify

This is where most software claims come unstuck. HMRC treats the following as routine — not R&D:

• Configuring existing systems or implementing standard integrations.
• Building applications with well-established tools and frameworks in the normal way.
• UI/UX and cosmetic work, or planned feature updates.
• Routine bug fixing and maintenance.
• Data migration and manual testing — "migrate 10TB to a new schema" is operational work, not investigation of an uncertainty.

The test is always the same: was there a technological uncertainty a competent professional couldn't readily resolve? If the path was known and the work was execution, it isn't R&D.

Which costs you can claim

For a qualifying software project, you claim an apportioned share of:

• Staff costs — gross salary, employer's NIC and pension for developers, architects, testers and technical leads doing or directly supporting the R&D. Usually the largest line in a software claim.
• Subcontractors and externally provided workers — contract developers and agency staff, under the current merged-scheme subcontracting rules.
• Software licences used directly in the R&D, apportioned where also used for non-R&D work.
• Data and cloud computing costs — a qualifying category since April 2023 and often significant for SaaS: compute for training and experimentation, cloud test environments, and datasets acquired for the R&D. See our guide to cloud computing costs in R&D claims.

Consumables (power, materials) rarely feature in a pure-software claim — the value is overwhelmingly people and cloud.

How relief is calculated

For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D scheme: a 20% above-the-line expenditure credit on qualifying costs (taxable, so the net benefit is lower after Corporation Tax).

There's an important angle for early-stage SaaS: loss-making, R&D-intensive companies — where qualifying R&D is at least 30% of total expenditure (CIRD123000) — can claim the more generous Enhanced R&D Intensive Scheme (ERIS). A pre-revenue startup where developer salaries dominate the burn frequently clears that 30% threshold, so it's worth checking your intensity ratio before assuming the standard credit.

The same principles apply across sectors — see our companion guide to R&D tax relief for engineering firms.

Making a software claim that survives HMRC

Software has been a focus of HMRC's tougher compliance approach, so evidence matters more than ever:

1. Define the project boundary. CIRD81960 expects you to pinpoint where the R&D starts (when work to resolve the uncertainty begins) and ends (when it's resolved or abandoned) — not the whole product build.
2. Name the uncertainty and the advance. Say what a competent professional couldn't readily deduce, and what advance in the field you sought.
3. Keep contemporaneous records — architecture decisions, spike/experiment notes, failed approaches, and timesheets linking developers to R&D.
4. Complete the Additional Information Form — every claim needs a completed AIF with a technical narrative and cost breakdown, filed before or with your CT600.

Frequently Asked Questions

Can SaaS companies claim R&D tax relief?

Yes, where the development seeks a genuine advance in software engineering by resolving technological uncertainty — for example novel algorithms, new data architectures, or performance breakthroughs beyond what existing tools allow. Building standard features with established frameworks does not qualify. For a real example, see how a software developer claimed a £50,000 tax reduction.

Does routine software development qualify for R&D tax relief?

No. Configuring systems, standard integrations, UI work, planned features, bug fixing, and data migration are treated as routine. The work must resolve a technological uncertainty a competent professional couldn't readily overcome.

Can we claim cloud and hosting costs?

Cloud computing and data costs have been a qualifying category since April 2023 and are often significant for SaaS — compute used for experimentation and training, and datasets acquired for the R&D — apportioned to the qualifying activity. Routine production hosting is not R&D.

Which R&D scheme applies to a loss-making SaaS startup?

For periods beginning on or after 1 April 2024, most companies use the merged scheme (20% expenditure credit). Loss-making companies whose R&D is at least 30% of total expenditure may instead claim the more generous ERIS — a bracket many dev-heavy startups fall into.

Does using open-source components or existing tools disqualify a project from R&D relief?

No. In Get Onbord Ltd v HMRC [2024] UKFTT 617 (TC), the tribunal confirmed that building on existing code or open-source components doesn't rule out R&D. The test is whether the resulting capability isn't readily available elsewhere and required resolving genuine technological complexity to build — not whether every component was invented from scratch.