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HMRC internal manual

Corporate Intangibles Research and Development Manual

R&D tax relief: categories of qualifying expenditure: software

CTA09/Ss1125 & 1126

Revenue expenditure incurred on software employed directly in R&D is a category of qualifying expenditure for expenditure incurred on or after 1 April 2004. Software means computer software. The category was introduced in the SME scheme by FA00/SCH20/PARA6. The same category was adopted for the large company scheme by FA02/SCH12/PARA17 (c).

The software must be used in activity that constitutes R&D for tax purposes, which includes ‘qualifying indirect activities’.

Use other than directly in R&D

Expenditure on software not employed directly in R&D is not qualifying expenditure.

So, software used by the human resources department for routine work related to the R&D staff would be included. But software used to train the HR staff would not.

Further guidance on the indirect aspects of R&D is given in the BIS Guidelines (formerly DTI Guidelines) (CIRD81900 for the 2004 guidelines).


Where software is only partly employed in direct R&D an appropriate apportionment of the expenditure should be made.

How a suitable apportionment is to be achieved in practice is dependent on the particular facts of the R&D, and the software.

Wherever possible a pragmatic approach should be adopted - for example, an apportionment based on staff numbers may prove most suitable where a particular software product is used by R&D and non R&D staff.

If a company offers a reasonable apportionment basis HMRC do not envisage detailed enquiries being desirable to establish a slightly more accurate alternative.