Research and development (R&D), is an additional activity undertaken by companies in attempting to develop new products, processes, services or provide an appreciable advancement to those that already exist.
There is a degree of risk when undertaking an R&D activity due to the scientific and/or technological uncertainties over whether the advance attempted is technologically or scientifically achievable. The R&D undertaken does not have to be successful to qualify for R&D tax relief.
R&D may be essential for some companies to remain competitive by way of new innovations or advancements in existing ones. R&D can be expensive however, in 2000 the government introduced the ‘Research & Development Tax Credit’ relief to encourage growth by investment in innovation.
What is R&D?
The new Department for Science, Innovation and Technology (previously BEIS now DSIT) defines R&D as follows:
R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology … through the resolution of scientific or technological uncertainty.
It also states that ‘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).’
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 or deducible by a competent professional working in the field.
So, what does this mean in ‘normal English’ – It means that you can seek to make an advance by developing a new product, process, or by significantly improving an existing one.
E.g. A company with a project in IT, involving developing a new process for extracting a specific form of data which the company’s software experts cannot easily say how to create, in addition to the knowledge on how to undertake the project is not known in the market place, may qualify.
However, the development of a new e-commerce site would not qualify, as this does not advance any technology, and a software expert could say how to achieve it quickly.
How Dafferns can help
The R&D that you undertake is unique and so are your business needs. At Dafferns we do not believe a one-size-fits-all approach to R&D tax advice. Therefore, the advice we provide is tailored to your individual needs.
Many companies that are entitled to R&D tax relief, do not claim it either through lack of awareness or because it seems to complex or inappropriate to their business. R&D tax relief is not just for traditional scientific research. It is also for development work in design and engineering. The R&D undertaken does not have to have been successful to qualify and you can also include work undertaken for a client as well as your own projects.
For those claiming R&D for first-time claimants or for companies whose last claim over three years ago, HMRC will need to be informed of the intention to make a claim. This is in addition to the AIF (additional information form) that has been a requirement for all claims submitted since the 8 August 2023.
GfC3 has lots of examples to help businesses understand the HMRC approach to the definition of R&D.
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