A potential contributing factor as to why less than 10 percent of qualifying companies claim R&D tax relief could be because they are unaware that their work or project actually qualifies under the ‘Research and Development’ umbrella definition. In this Guide, the R&D tax specialists at Luvo Financial explain exactly what counts as R&D.
It doesn’t matter the size or sector of your business. Whilst HMRC’s criteria is purposefully broad as to what can be included, it states that, 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.
Specifically, the work or project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D. Your project may research or develop a new process, product or service or improve on an existing one. It’s important to note that your R&D does not have to have been successful to qualify for R&D tax.
Bear in mind that to apply for R&D tax relief, you will need to explain how your project:
• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field.
What doesn’t qualify?
To qualify for R&D, your work cannot be an advance within the arts, humanities, social sciences like economics or within a theoretical field like pure maths. It must strictly be in the science or technology fields.
Routine copying of existing products, processes, materials, devices or services, will not usually qualify as R&D. Similarly, work to improve the cosmetic or aesthetic qualities of a process, material, device, product or service will also not qualify. However, work to create certain cosmetic or aesthetic effects through the application of technology can still sometimes count.
Questions to help determine if your project counts as R&D
HMRC has outlined four key questions to answer when determining if the work or a project will qualify for R&D tax relief:
1. What is the scientific or technological advance?
2. What scientific or technological uncertainties were encountered?
3. How and when were the uncertainties overcome?
4. Why wasn’t the knowledge being sought readily deducible by competent professionals?
Having your responses to these questions clearly set when making a claim will help HMRC see that your company really is doing R&D. At Luvo Financial, we have extensive experience of preparing claim documentation for all types of businesses. If you’re unsure whether your work or project qualifies for R&D relief, we’d be happy to help answer any questions you may have.
Get in touch
Luvo Financial, which is based near Wolverhampton, works with businesses and independent accountancy practices across the Midlands and elsewhere in the UK. Luvo was founded in 2015 by Partners Ian Batkin and Vicki White, who are both qualified accountants.