What is R&D?

So you’re thinking about making a claim….

You’ve been working on some interesting and challenging new developments in your field and are thinking about making a claim for R&D tax relief….but can you?! In order to accept a claim for relief HMRC require a detailed explanation of how your work fulfils the requirements of the guidelines. The regime is complicated and can be difficult to navigate but we’ll show the key points to consider

So what is R&D?

R&D for tax purposes takes place when a project seeks an advance in science or technology and in so doing resolves scientific or technological uncertainty. Activities that make a clear contribution to pursuing this advance can usually be considered eligible for relief.

So what does advance actually mean?

“Advance in science or technology” in simple terms means an extension of overall knowledge or capability in a particular field. This will normally be demonstrated by achieving something tangible (such as a more energy efficient product or new software capabilities) but can also create intangible results such as new knowledge in a particular field. It’s worth noting: –

• It is not enough to use existing science or technology to create an outcome, there must be at least the pursuit of an advance. Being novel or innovative doesn’t necessarily make an activity R&D
• The advance doesn’t need to be absolutely ground-breaking, appreciable improvements in a particular field are just as eligible for relief
• If a particular advance in science or technology has already been made but details are not readily available (for example, if it is a trade secret), work to replicate that advance can still be eligible
• The success of a project has no bearing on whether it can be included within a claim, it is enough to pursue an advance

And what is uncertainty?

Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or knowledge on how to achieve it in practice, is not readily available or deducible by a competent professional working in the field. If the technological challenge it is straightforward, or if there exists information in the public domain that would show you how to resolve the technological issue, then it is unlikely to satisfy the requirement. Following on improvements and fine-tuning which do not materially affect the underlying science or technology do not constitute work to resolve scientific or technological uncertainty whilst work to resolve systemic uncertainties (i.e. not knowing how to integrate new or distinct components within a wider system) can qualify if it is uncertain how to combine things in a way that allows the system to function efficiently.

So what information is needed for a claim?

The information needed to produce a robust claim is quite wide-ranging and can be difficult to collate and summarise, especially where this is undertaken many months after the work has been done. We will guide you through this but to best support your claim you should maintain contemporaneous records of:

• the different project stages that took place
• details of how and when uncertainties were identified and overcome
• contemporaneous project documents that informed and supported the work
• the activities undertaken and estimates of the time spent by the people involved
• any R&D undertaken by subcontractors and consultants
• any wider costs (such as consumables, software or other resources) that were used in the process