Section 174 relief: what it means for small businesses spending on R&D

If you spend money creating, improving, or building anything technical in your business, a quiet change to the tax code has probably been costing you more than you realise. The rules around Section 174, which governs how research and development costs are deducted, shifted a few years ago, and many small business owners are still overpaying because nobody walked them through it.

What actually changed

For decades, money spent on research and development could be written off in the same year you spent it. That changed. Those costs now have to be spread out, or amortised, over several years instead of deducted all at once. In practice, that meant a lot of businesses suddenly owed tax on money they had already spent, which felt deeply unfair, because it was.

Recent relief has started to walk some of that back, especially for smaller businesses and for domestic spending. The details are still settling, but the headline is good news: if you were caught out by the old treatment, there may be money to recover, and the path forward is clearer than it was.

Who this affects

You do not need a lab coat to be affected. Section 174 reaches further than people expect. It can include software development, product design, process improvement, and the engineering time behind a lot of ordinary looking businesses. If you have paid developers, engineers, or designers to build something, this is worth a conversation.

What to do about it

Three practical moves:

• Identify every cost that could count as research and development, including wages, contractor fees, and software.
• Check whether prior returns treated those costs correctly. If not, amended returns may put money back in your pocket.
• Plan next year deliberately, so the timing of your spending works with the rules instead of against them.

This is exactly the kind of thing that slips through the cracks when you are filing alone. The savings are real, but they only show up when someone is looking for them on purpose. If you have spent money building something this year, ask us to take a look before you file.