R&D TAX credits are one of the most attractive tax reliefs available at the moment, given that they can often result in significant cash repayments from HMRC.
A lot more of your activities could be eligible for the UK Government's research and development tax credit scheme to encourage and reward innovation than you might think.
Why is this important to know?
Identifying which of your technical activities are eligible / what can be claimed under R&D tax relief is important as it can impact not only on the size of the claim, but also the way in which it is treated by HMRC.
This can lead to cases where the claim is either far smaller than it should be, or is large relative to company size but unsupported by sufficient detail – and this can incur issues with HMRC’s specialist R&D inspectors.
How do I know what I can and cannot claim under the scheme?
Basically the most important thing is that you must be able to demonstrate to HMRC that the product or service you’re planning to include in your claim is truly innovative, cutting edge and, at a technological level, an advance on what is currently available in the market.
According to HMRC, R&D for tax purposes is a project (or a component of a larger project) that “seeks to achieve an advance in science or technology (through) the resolution of scientific or technological uncertainty”. Even if it isn’t successful, R&D is still deemed to have taken place.
So basically, in HMRC’s world, you’re undertaking R&D when you’re:
- overcoming technological uncertainties aimed at
- achieving an advance in technology,
- which isn’t readily deducible by a competent professional.
If those conditions apply to your project, then congratulations - you can claim research and development tax relief on its day-to-day costs and expenditure! (staff, subcontractors, materials, software, utilities…)
R&D can include not only the design of products and services and software involving new technology but also substantially improving existing products and services. The definition also includes the construction of prototypes.
Give me some examples
Here are a few examples of what can be claimed for the Top industry sectors that recovered the most R&D tax credits from the government last year:
- Improvements to manufacturing processes or machinery (Faster / Better quality / Reduced waste / Safety)
- Ergonomics – ease of operation or suitability of manufactured products
- Computer models – e.g. to evaluate stresses, or fluid flow
- Using new, unproven, methods of manufacturing existing products
- Developing ways of manufacturing new products
- Increasing process efficiency/ safety
- Reducing emissions
IT & Software
- Incorporating new or untested technology into products, where experimentation is required to select the best implementation route.
- Testing new technology or programming languages where there is little information on their usage in the public domain
- Making existing products work on new platforms, where this involves overcoming technical problems that haven’t been solved before.
Scientific & Technical
- Genetic analysis of agriculturally important organisms or phenotypes
- Development of protocols for the identification of disease agents
- Development of new biomarkers (i.e. molecules that can act as a flag for disease)
- Making improvements to specificity or accuracy of test protocols
Obviously this is not an exhaustive list but it will give an idea of the types of work that could well be eligible for R&D tax credits.
It’s difficult to be more specific without knowing the industry sector you’re working in.
This is why it is always wise to seek professional advice before undertaking a claim.
Maximise your results
Involving specialist advisors for your claim means that your claim will be more efficient. You will benefit from the specialist’s tried and tested template and receive support from their team to guide you through any questions as you compile the claim.
With support from specialist advisors you will be able to:
- demonstrate which of your activities qualify under the scheme,
- receive a funding stream for further research and development projects and
- develop an understanding of how to make best use of the scheme as you progress.