According to HMRC, work that advances overall knowledge or capability in a field of science or technology, and projects and activities that help resolve scientific or technological uncertainties, may qualify for R&D relief.
Answering this question is not easy and there are many factors that must be considered. Many businesses, especially smaller ones, are convinced that their project will not qualify or that the effort is not worthwhile. However, for many businesses, the surprising answer is that your project could qualify for relief and substantial tax benefits.
To qualify the company must be carrying out research and development work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems.
In a nutshell, this means that any company working on a project to resolve some type of uncertainty that advances science or technology may qualify for R&D tax relief. This is an important rule to remember.
The company must be able to demonstrate that they worked to solve an issue and somehow advanced the overall knowledge in their field/industry.
This can include creating
- New processes,
- Products or services,
- Making appreciable improvements to existing ones and
- Even using science and technology to duplicate existing processes, products and services in a new way.
Whilst there is much guidance published by HMRC the rules are complex and whether or not a project qualifies can often be open to interpretation. We have seen cases where projects have qualified in the past but then no longer qualify and vice-versa. How an R&D claim is put together and explained to HMRC can also have an impact. Small companies can also apply for advance assurance from HMRC that a project will qualify before incurring any expenditure.
Interestingly even if a project ultimately fails, the mere fact that research and development was undertaken to develop a solution may be enough to qualify for tax relief. It is also important to ensure R&D relief is maximised by claiming for all allowable costs on qualifying projects.