What 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.
The guidance behind those requirements is both extensive and complex, which leads companies to believe they are not undertaking qualifying activities. In actuality, under HMRC’s definition, many have invested significantly in R&D without realising.
This has resulted in eligible companies not submitting applications, or overlooking numerous qualifying activities when compiling their report, ultimately leading to vast amounts of tax relief being unclaimed. Some of the more spurious R&D providers will regularly under or overclaim costs for their clients.
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 complex machines, spring to mind. However, HMRC’s definition of R&D is much broader than most realise.
Put simply, if you’re using technology to overcome a problem that you’re not sure how to solve, you may be fulfilling HMRC’s definition of R&D.
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 qualifying activity, the eligible costs are recoverable; this is designed to stimulate investment in innovation and drive the UK economy forward.