Can Companies Claim R&D Tax Relief on the Costs of Acquiring Designs?

When it comes to Research and Development (R&D) tax relief, many companies wonder if the costs associated with acquiring designs qualify as eligible R&D expenditure. In the UK, the R&D tax relief scheme is designed to incentivise innovation, but it has specific criteria for what qualifies as R&D. So, can you claim R&D tax relief on the cost of acquiring designs? Let’s break it down.

What Is R&D Tax Relief?

R&D tax relief allows companies investing in innovation to claim back a portion of their research and development expenses. This relief applies to various activities and costs related to the creation or improvement of products, services, or processes that advance science or technology. The aim of this relief is to support businesses in overcoming technical uncertainties and pushing the boundaries in their fields. 

Does Acquiring Designs Qualify for R&D Tax Relief?

The answer depends on the nature of the design work and how it is used within your R&D project.

Buying Pre-Existing Designs

If your company purchases pre-existing designs from another entity (e.g., architectural designs, product blueprints, or CAD models), the cost of acquiring those designs would not typically qualify for R&D tax relief. This is because the purchase of pre-existing assets doesn’t contribute to advancing science or technology, which is a core requirement of R&D tax relief.

HMRC’s R&D tax relief guidelines are focused on rewarding original innovation and the development of new knowledge. Simply purchasing a design does not fall under the umbrella of R&D activity, as it doesn’t involve overcoming scientific or technical uncertainties.

Modifying or Improving Designs

However, if your company uses the acquired designs as a starting point and undertakes further R&D activities to improve or modify them, you may be eligible to claim R&D tax relief on the additional development work. For instance, if you purchase a product design and then invest in engineering work to improve the functionality, materials, or efficiency of the product, the costs related to this R&D work could be eligible. 

The key here is that the work must involve advancing science or technology beyond what is already available. If your R&D activities introduce innovations or solve previously unresolved challenges, this portion of the project may qualify for R&D tax relief. 

What Costs Can You Claim for R&D Relief?

If your R&D activities around modifying or improving designs qualify, you can claim tax relief on a variety of associated costs, including: 

• Employee costs: Salaries, National Insurance contributions, and pension costs for staff involved in R&D activities. 

• Subcontractor costs: Fees paid to subcontractors or external experts who assist in the R&D process. 

• Software and consumables: Costs for software, materials, or prototypes used specifically in the R&D process. 

• Utilities: A portion of utility bills, like electricity or water, used in the R&D work. 

However, as mentioned earlier, the initial cost of acquiring the designs would not qualify for relief; only the work done to modify or innovate upon them would be eligible. 

Why Design Work May Still Qualify as R&D

While purchasing designs alone doesn’t qualify for R&D relief, if your business engages in design development as part of your R&D projects, there’s a good chance your activities will be eligible for tax relief. For instance, in industries such as engineering, software development, and product manufacturing, significant R&D is often involved in: 

• Developing a design that includes new or complex features. 

• Solving technical challenges to meet specific performance standards. 

• Creating prototypes and testing new design iterations to achieve functional improvements. 

In these cases, the design process is a vital part of the broader R&D activities, and the costs associated with designing, testing, and improving the product are likely to be eligible for tax relief. 

How TBAT Innovation Can Help

Navigating the nuances of R&D tax relief can be challenging, especially when dealing with complex projects that involve both design and technical development. TBAT Innovation specialises in identifying qualifying R&D activities and costs, ensuring your business maximises its claim. 

Our expert team can: 

• Assess your project to determine which aspects of design and development are eligible for R&D tax relief. 

• Help compile the necessary documentation to support your claim. 

• Ensure that your submission is in line with HMRC’s guidelines to avoid delays or rejections. 

By working with TBAT Innovation, you can be confident that you’re claiming all the R&D tax relief you’re entitled to, including any eligible design-related costs. Get in touch with us today to find out how we can support your R&D tax claim. 

Conclusion

While the acquisition of designs doesn’t typically qualify for R&D tax relief in the UK, any R&D activities you undertake to modify, improve, or innovate upon those designs may be eligible. The key is demonstrating that your work involves solving scientific or technical uncertainties and advancing knowledge in your field. If your business is involved in design and development, exploring R&D tax credits can provide a significant financial benefit. 

If you’re unsure about your eligibility or need expert advice, reach out to TBAT Innovation via the form below for guidance on how to maximise your R&D tax claim. 

Book a free 1-2-1 consultation today to discuss your project!