Do my projects meet the definition of R&D for tax purposes?
Overview of R&D
R&D cannot exist with a scientific or technological advance but no scientific or technological uncertainty, and vice versa. R&D takes place when a project seeks an advance in a field of science or technology through the resolution of scientific or technological uncertainty. The use of the word ‘seeks’ should be highlighted and means that the ability to claim for a project does not rely on success.
If a project sought to bring a company’s knowledge and capability in line with a field of science or technology’s knowledge and capability that was already readily available, it would not qualify for R&D tax relief.
Scientific or Technological Advance
An advance is always measured against the knowledge and capability that was readily available in the public realm in relation to that specific field of science or technology; this is commonly referred to as the “baseline”. The baseline can be imagined as a horizontal line which is defined as the existing knowledge and capability. If a qualifying project proves to be successful, resulting in new knowledge and advanced capabilities in a field of science or technology, then the baseline has effectively been raised for that field of science or technology in its entirety.
In seeking to derive new knowledge in a field of science or technology, this would need to occur through the development or improvement of a process, material, device, product, or service.
Scientific or Technological Uncertainty
Three main types of scientific or technological uncertainty can be encountered when a qualifying project is being worked on: scientific or technological feasibility, practical application, or system uncertainty.
There are two critical questions that you should ask yourself when assessing whether a project your business has worked on qualifies for R&D tax relief. These are:
- Is the new knowledge that is being sought readily available in the public realm; and
- Is the new knowledge that is being sought readily deducible for competent professionals working in the field of science or technology?
If the answers to both these questions are ‘no’, then these are strong indicators of R&D in terms of scientific or technological uncertainty.
R&D is often necessary because a technical problem has been discovered. If the existing knowledge in a field of science or technology means that certain methods or approaches are applied, and none of these methods or approaches resolve the technical problem, then scientific or technological uncertainty has occurred. To resolve the scientific or technological uncertainty, new methods or approaches, which would not traditionally be taken for the technical problem that has been identified, would need to be trialled in an experimental manner to deduce the new knowledge sought, and in turn the advanced capability.
How we can help
With HMRC scrutinising more claims now than ever before, it is important that claims are accurately made from the get-go; this can be achieved with Moore R&D’s specialist guidance and advice. Navigating the comprehensive guidelines on the meaning of R&D for tax purposes can be challenging for your business, so that is where we can come in and share our knowledge in an easily digestible way.
