What Qualifies for R&D Tax Relief

Frequently, one of the most difficult areas for companies considering making a claim is assessing what qualifies as R&D for the purposes of claiming tax relief or tax credits. There are a number of reasons for this but usually the key one is that R&D is found throughout a company's activity rather than in just a narrow area performed by 'the R&D team'. We recommend you view our video guide to what qualifies as R&D for tax purposes as the first step.

 

We find that companies will say to their accountant that they wish to file an R&D tax credit claim and the accountant will simply ask them what their spend on R&D was.

The difficulty with this is that the definition of what qualifies as R&D for tax purposes which is much broader than the traditional idea of what  is R&D.  In fact it is rare to find qualifying R&D activities occuring only in laboratories and companies which simply sum up the salaries of their software developers or engineers are almost inviting an enquiry from HMRC.
 

While the R&D Tax Relief scheme is a tax-based mechanism to incentivise R&D, the cornerstone of the scheme is not the tax but the technology.


Frequently large elements of qualifying R&D occur in taking something that has been theoretically shown to work under lab conditions, and turning it into a commercially viable mass product. So the traditional conception of R&D being performed by men in white coats in a laboratory is really just the tip of the iceberg and far from accurate.

 

When making a claim HMRC will expect to have some detail on each project to show why it is eligible for the relief.

 

This will include detailing what the technological advance sought was and what the technological uncertainties needed to achieve that advance were. During the claim preparation process it will be necessary to understand on each project what the technological advance and uncertainties were, in order to correctly quantify the allowable claim amounts.

 
For example, in manufacturing, the work around the process improvements necessary to productionise the idea generated by the core R&D groups can qualify while in software, design, testing and potentially even running the system in a live environment can all qualify. In pharmaceuticals, Phase 4 testing can potentially qualify as well. These are tested principles and many claims have been made for all these areas.
 

The key to an optimal claim is therefore to discard pre-conceived notions at the outset about where your company's R&D is and look across the entire organisation and development lifecycle.

 

Ask us if your project qualifies