Definition
Software R&D covers research and development work in software engineering and computer science. HMRC recognises that software development can qualify where the project seeks an advance in the underlying field, such as novel algorithms, new architectures, or significant performance improvements not achievable by standard techniques. Software that is commercially innovative but technically built on established frameworks, libraries and design patterns typically does not qualify. HMRC issued updated software-specific guidance in 2024 to clarify the boundary.
How HMRC defines it
HMRC guidance on software R&D is at CIRD81960 and CIRD81970 of the CIRD Manual, and in the 2024 Guidelines for Compliance publication GfC3, Help to see if your work qualifies as R&D for tax purposes. The guidance illustrates typical acceptable and unacceptable software projects with worked narratives.
Practical example
A fintech SME builds a new payment routing engine whose core algorithm is a novel approach to latency-optimised transaction sequencing not found in published literature. The front-end and reporting modules use standard frameworks and are excluded. The qualifying R&D is the algorithm work and its associated testing, with the rest treated as routine development outside the claim.