What is R&D for tax purposes?

What is R&D for Tax Purposes?

The R&D Tax Credits schemes were designed to be applicable to any industry that is undertaking R&D, meaning that the same set of rules apply to the textile and software industries as they do to biochemistry and subsea industries! What qualifies as R&D in HMRC’s eyes is laid out in The Department for Business Innovation and Skills Guidelines on the Meaning of Research and Development for Tax Purposes, also (thankfully!) known as the BEIS guidelines.  

The BEIS guidelines are broad, surprisingly accessible and relatively short (unlike their moniker!), however, below we’ve tried to summarise what qualifies as R&D for the R&D Tax Credits scheme. 

Summary of R&D for Tax Purposes

To qualify for R&D Tax Credits relief, the project needs to be seeking an advance in science or technology by the overcoming of scientific or technological uncertainties. In addition, the resolution of these uncertainties must not be readily deducible by a competent professional working within the field. This means that if you are developing something that is significantly ‘better’ than your competitors or making significant improvements to an existing product/service/process/material, your work probably contains qualifying R&D. 

What is an advance in science or technology?

An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). 

What is scientific or technical uncertainty?  

Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible; or how to achieve it in practice is not readily available in the public domain or deducible by a competent professional working in the field.  

What are qualifying activities?

A number of different directly contributing and indirectly qualifying activities are eligible for R&D Tax Credit relief. These can include work that you do to develop your own products/services and in some circumstances, work that is done on client projects. A non-exhaustive list of eligible activities can be found below: 

  • Design adaption and optimisation  
  • Design Analysis  
  • Prototyping  
  • Testing 
  • Production trials 
  • Process / System / Product Design Evaluation  
  • Process / System / Product Design Development 

Information Management Systems, develop, as to provide a faster and more efficient workflow internally 

  • Feasibility Studies undertaken to understand the strategic direction of the R&D project 
  • R&D project planning  
  • R&D project administration and support activities, directly contributing to R&D project delivery  
  • The training required to directly support an R&D project 

All of the above activities must be focused on achieving an advance in science or technology. Work to overcome non-scientific/technological uncertainties is not R&D. 

What are not qualifying activities? 

Activities which do not directly contribute to the resolution of scientific or technological uncertainty include: 

  • The range of commercial and financial steps necessary for innovation. 
  • Work to develop non-scientific or non-technological aspects of a new or appreciably improved process, material, device, product or service. 
  • The production and distribution of goods and services. 
  • Business administration and other supporting services. 
  • General support services not relating to R&D (such as transportation, storage, cleaning, repair, maintenance and security). 

If you are unsure whether your work qualifies as R&D please contact TBAT who will put you in contact with one of our specialist consultants. 

If you’re looking for additional help with your R&D Tax Credits claim, please contact us.

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