This year’s Building Societies Association conference reinforced a clear theme: technology investment is now central to the sector’s strategy. Building Societies are rapidly modernising legacy platforms, improving digital member journeys and exploring AI-led efficiencies to remain competitive.

This reflects wider industry trends and technology investment, particularly in AI, cloud and digital capabilities, is a core priority across the sector. At the same time, cost pressures remain high. Regulatory demands, operational complexity and legacy infrastructure continue to absorb capital.
 
Many building societies assume they are outside the scope of R&D tax relief because they operate in financial services or rely heavily on outsourced development. Under current rules, those assumptions often do not hold, and R&D tax relief can provide a useful funding lever for many of the projects already underway.

What qualifies as R&D?

R&D for tax purposes arises where a project seeks to achieve an advance in science or technology by resolving technical uncertainty. For building societies, this typically sits within technology and change programmes. Common examples include:

 

• Systems integration
  • Designing APIs and middleware to support broker and intermediary channels
  • Improving system design to integrate more modern vendor technologies into an existing architecture
  • Modernising systems whilst enabling legacy and modern systems to interoperate
• Core systems transformation
  • Re-architecting mortgage or savings platforms
  • Migrating to cloud or hybrid environments where technical constraints exist
• Digital member experience
  • Developing new online or mobile capabilities with complex front- and back-end interactions
  • Improving performance, scalability or security beyond standard solutions
• Data and analytics
  • Building AI or advanced data science capabilities
  • Resolving challenges with real-time data processing

Projects do not need to succeed or have concluded/launched in a specific fiscal year to be eligible, and iterative development and unsuccessful prototypes often strengthen the case for R&D.
 
What can be claimed and what is the benefit?
 
Under the merged R&D regime in place from April 2024, most building societies will claim under a single above-the-line credit model.

 

• The headline benefit is typically c.20 pence for every £1 of qualifying R&D spend (gross)
• This is delivered as a taxable credit, positively impacting EBITDA and financial health
• Post-tax (net) benefit is c. 15-16 pence per £1 of eligible spend

Qualifying costs for building societies will often include:

 

• Staff costs for in-house technical personnel involved in R&D projects
• Externally provided workers such as contractors and agency resource
• Subcontracted R&D costs for third party vendors, subject to the contracted-out rules (see below)
• Software, data and cloud computing costs directly supporting the R&D activity

Contracted-out R&D: a change in approach
 
From 1 April 2024, the rules on contracted-out R&D have changed significantly. Historically, large companies such as building societies did not have the right to claim R&D tax relief on subcontracted expenditure (such as that incurred on technology suppliers and vendors). The new regime aligns relief more closely with the party that decides to undertake the R&D and bears the associated risk.

For building societies, this is particularly relevant given the reliance on third-party technology providers. Where you engage external suppliers to deliver technology solutions, you may now be able to claim, provided it is reasonable to assume that R&D was intended by you when the contract was agreed.
 
HMRC’s guidance now centres on:

 

• who initiated the work
• who defined the technical requirements
• who bears financial risk
• who benefits from the outcomes

However, there are restrictions on overseas spend for contractors which need to be carefully considered, and relevant additional information (such as PAYE references) collated as needed.

Why this matters now
 
The policy direction is clear. The reality is that many building societies deliver change through multi-vendor ecosystems and strategic technology partnerships. The new Merged Scheme is designed to incentivise domestic innovation, and for building societies, this creates a practical opportunity where significant technology spend is already committed and much of the technological work involves genuine technical challenge due to the legacy nature of existing systems.
 
R&D tax relief can therefore:

 

• Generate a recurring cash benefit
• Improve the return on transformation investment
• Support continued innovation during a period of cost pressure

Don’t miss the opportunity: pre-notification is now mandatory
 
Technology is now central to how building societies compete and serve members. The investment required is significant and ongoing. R&D tax relief may not fund transformation programmes in full, but it can reduce the cost of delivery in a meaningful way.

For companies that have not claimed R&D tax relief recently, HMRC now requires advance notification of an intention to claim, generally within six months of the end of the accounting period. In practice, this means that building societies who are new to R&D claims, or those that have not claimed in the last three years may lose their benefit altogether if this step is missed.
 
Given the scale of current transformation activity across the sector, a key takeaway for finance and tax teams would be to assess potential eligibility early and consider pre-notification as part of the year-end process, not after it. R&D tax relief may not fund transformation programmes in full, but it can reduce the cost of delivery in a meaningful way. In a period where investment discipline matters, it is a lever worth revisiting.
 
To find out more about R&D tax relief, now or in the future, please contact Kanika Mishra-Pathak at kanika.mishrapathak@mha.co.uk and you can also read more about R&D tax relief by clicking here: https://www.mha.co.uk/services/tax/research-development