Yes, you can claim R&D tax credits for certain cloud computing costs if they directly support qualifying research and development activities. Qualifying expenditure includes specific SaaS, data storage and software development costs when they form an integral part of your R&D project.
HMRC has updated its approach to cloud costs in recent years. This guide explains the current rules in practical terms so you can assess your own spending, keep the right records and decide whether to include these costs in a claim.
What counts as qualifying R&D activity for cloud costs
Your project must seek to resolve scientific or technological uncertainties. For e-commerce founders this could include developing new algorithms for product recommendation, creating novel checkout flows that reduce cart abandonment in innovative ways, or building custom machine-learning models for inventory forecasting.
Cloud costs only qualify when they are directly attributable to these activities. Routine use of off-the-shelf SaaS for accounting, marketing or standard website hosting does not qualify. The key test is whether the cloud resource is necessary to resolve the uncertainty you have identified.
Qualifying SaaS, data storage and software development expenditure rules
From 1 April 2023 cloud computing costs can be included when they relate to:
- Data storage and processing used exclusively for the R&D project
- SaaS platforms consumed directly in the R&D (for example specialist simulation or AI training platforms)
- Computing power purchased to run your own code that resolves technological uncertainty
Costs must be revenue expenditure, not capital. Software licences and subscriptions usually qualify if they meet the above tests. Development of your own software can also qualify if it meets the R&D criteria, but you must apportion the cloud spend to the qualifying elements only.
General business tools such as email platforms, standard analytics dashboards or e-commerce store hosting do not qualify even if you use them while working on an R&D project.
Practical steps to identify and calculate eligible cloud spend
Start by listing every cloud service you pay for. For each one ask three questions:
- Does this service directly support a project that resolves scientific or technological uncertainty?
- Can I measure the proportion of usage that relates to the R&D project?
- Is the cost revenue in nature (subscription or pay-as-you-go rather than a capital purchase)?
Example: An e-commerce founder building a new image-recognition system for product categorisation might use cloud GPU instances. Only the GPU hours actually spent training and testing the models qualify. The same provider’s standard web-hosting fees for the live store do not.
Use your provider’s usage reports to apportion costs. Many platforms let you tag resources with project codes. Set these up at the start of the project so reporting is straightforward at year end.
Record keeping and evidence HMRC expects
Keep clear records that link each cloud cost to the qualifying project. This should include:
- Project notes describing the technological uncertainty and how the cloud resource helps resolve it
- Monthly or quarterly usage breakdowns from the provider
- Calculations showing the percentage of total spend attributed to R&D
- Contracts or subscription invoices in the company name
Store these records digitally and retain them for at least six years. If HMRC opens an enquiry, you must demonstrate both that the project qualifies and that the costs are directly attributable. Vague statements such as “we used AWS for everything” are unlikely to succeed.
Common pitfalls for early-stage e-commerce and startup teams
Many founders assume all cloud spend qualifies because “we are a tech company”. HMRC looks at the specific project and the precise use of each service. Another frequent error is claiming 100 % of a mixed-use platform without apportionment.
Pay-as-you-go costs that fluctuate with non-R&D traffic (for example standard website bandwidth) must be split. If you cannot reliably separate the qualifying portion, that cost cannot be included. Finally, do not claim costs incurred by contractors or freelancers unless they are included on the company’s own R&D claim under the correct rules.
How to include cloud costs in your R&D tax credit claim
Once you have identified and documented the qualifying spend, add it to the total qualifying expenditure figure on your corporation tax return. Most companies claim through the SME scheme, although the exact mechanics and rates change periodically. Submit the additional information form that HMRC now requires, describing the project and the cloud costs in sufficient detail.
Consider preparing a short technical report alongside your claim. This does not need to be long but should explain the uncertainty, the work done and the role of cloud computing. Many accountants recommend reviewing claims with a specialist before submission because errors can delay repayment or trigger enquiries.
Next steps and where to get support
Review your current cloud invoices against the qualifying criteria above. Speak to your accountant or a specialist R&D adviser about your specific projects. Rules and interpretation evolve, so always check the latest guidance on GOV.UK before making a claim.
Early-stage founders based in West Yorkshire can also explore free workspace and mentoring at Loomworks in Liversedge, which supports selected e-commerce and technology startups with desks, a registered address and operator guidance while they build their businesses.
Frequently asked questions
Can I claim for AWS or Google Cloud usage in my R&D tax credit?
Yes, but only the portion directly used for qualifying R&D activities that resolve scientific or technological uncertainty. Routine hosting, email or marketing usage does not qualify. You must be able to show clear apportionment based on usage data.
Do SaaS subscriptions for design or analytics tools qualify?
Generally no. Standard tools such as Google Analytics, Hotjar or Canva do not qualify even if used during product development. Only specialist SaaS consumed directly as part of the R&D experiment itself may be eligible.
How do I split cloud costs between R&D and normal business use?
Use the provider’s own usage reports, resource tagging or time-tracking data. Document the methodology you use and apply it consistently. If reliable separation is not possible, the cost cannot be claimed.
What records does HMRC want for cloud computing claims?
Project descriptions, technical notes on uncertainties, provider invoices, usage reports and your apportionment calculations. Keep everything together and linked to the specific claim period.
Can early-stage startups with no revenue still claim for cloud costs?
Yes. As long as the company is carrying out qualifying R&D and incurs the expenditure, loss-making early-stage companies can claim a payable tax credit. The detailed rules change over time so check current GOV.UK guidance.
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