Which Activities Qualify for R&D Tax Relief?
Eligible R&D activity can be difficult to identify, and you could be undertaking qualifying R&D work without even realising it.
HMRC’s definition of R&D
HMRC offers guidance for what qualifies as R&D. However, it can be confusing to fully understand. They state that for a project to qualify for R&D tax relief, it must:
- Seek an advance in science or technology
- Encounter technical uncertainty
- Take action to overcome this uncertainty
- Attempt to achieve things that could not be easily worked out by a professional in the field.
These definitions can lead companies to believe they are not undertaking qualifying activities. In actuality, they have invested in R&D significantly without realising.
This has resulted in eligible companies not submitting applications, or businesses overlooking numerous qualifying activities when compiling their report, ultimately leading to vast amounts of tax relief being unclaimed.
The easy way to think about R&D:
When people think of R&D, images of pharmaceutical companies developing cutting edge medicines, or engineering firms building highly advanced rockets, spring to mind. However, HMRC’s definition of R&D is much broader than most realise.
Put simply, if you’re trying to overcome a problem that you’re not sure how to solve, you may be doing R&D in the eyes of HMRC.
If you’re making a process faster or more efficient, integrating proprietary hardware or software to improve (or develop new) functionality, attempting to make an existing product in a more cost efficient or environmentally friendly manner, or of course, developing an entirely new product, process or service, you will likely be eligible to recover the associated costs.
Your project doesn’t even need to have been successful to qualify. Providing time and money has been spent on eligible activity, the costs are recoverable; this is HMRC’s way of encouraging companies to take risks and drive innovation.