What Exactly is Qualifying Research and Development?
Research and Development (R&D) can take many forms for different companies. It may be the development of a new product, or perhaps research into competitor behaviour. For some, it may be the creation of new procedures to ensure the business operates with greater efficiency. All businesses perform R&D to some degree – but to qualify for R&D tax relief, a company has to meet certain criteria. In this short article, we explore what constitutes qualifying R&D for R&D tax relief.
Scientific or technological uncertainty
Central to HMRC’s definition of qualifying R&D is the notion of scientific or technological uncertainty. This exists when knowledge of how to achieve something is not known, or is not in the public domain. Related to this is the notion of work being readily deducible by a competent professional. If the work being undertaken is ‘easy’ for someone who is competent in their field, it’s unlikely that scientific or technological uncertainty exists. To put this into layman’s speak, HMRC are only interested in projects or work which involve difficulty and technical risk. If you or your client knows exactly how to achieve what they set out to achieve, it’s unlikely we’re dealing with qualifying R&D. We often discuss the ‘blind alleys’ faced by our clients. This helps to tease out the relevant information we’re looking for.
Making an advance
As well as resolving technical uncertainties, it’s important that any project forming part of a claim can demonstrate some form of scientific or technological advance. This is often the cause of many clients doubting their eligibility for the scheme. When we talk of technological advances, we think of the creation of the turbofan, the growth of mobile technologies or perhaps the invention of radar absorbent materials. However, it’s important to note that R&D tax relief is not just about the advances which we may read about in the Sunday papers. It’s also about those incremental improvements that drive industry, competition and technical capability. The kind of technical improvements which we may not hear about, but over time, transform industry and the way we live. This may be making things lighter, cheaper, faster, more efficient, more reliable. Small, constant shifts in technology which over time equate to big change.
If your business or your client is undertaking development work where the two requirements outlined above are being met, it’s highly likely a claim can be made. Ascertaining whether or not a client is undertaking qualifying R&D is a tricky task for many advisers. At YesTax we have over a decade of experience in identifying the right type of R&D. It might just be worth a call to us.