Introduction
Qualifying your client’s projects for R&D tax relief is not as easy as it may seem. To make the process easier, we will go through three qualifying criteria that will enable you to understand whether your client’s projects qualify for R&D tax relief.
The three criteria consist of seeking advancement, overcoming technological uncertainties and using competent professionals.
Seeking an advancement in science or technology
An advancement is typically a groundbreaking innovation of science or technology. It includes the overall push in the field of science and technology by creating new products, processes and materials, whilst pushing innovation.
An appreciable improvement is developing something slightly better than what already exists, such as making something stronger, lighter, faster, smaller, cheaper. It includes reducing environmental waste or doing something more efficiently
If a company creates a product that is an advancement in science or technology and a similar product is available in the market but the product is protected by trade secrets, then the company would still meet the criteria of “advancement”.
HMRC wants companies to take risks by creating new and improved products and processes by pushing innovation, which will essentially create more jobs and boost the UK economy.
To encourage risk taking, the “advancement” does not have to be achieved. It only has to be seeked. This means that failed projects also qualify.
Scientific or technological uncertainties
An uncertainty would be not knowing if something was scientifically or technologically achievable. It includes systematic uncertainties.
For example, a drone manufacturer wants to develop a drone that would fit into the boot of an average car and be able to carry a 100kg load for two hours from a single battery charge.
The manufacturer knows how to create a normal drone, but it does not know how to develop this appreciably improved drone.
The uncertainties will be:
creating a small drone that is strong enough to carry a 200kg load
battery lasting two hours on a single charge
This uncertainty can be extended to software. A business may want to improve its management processes by automating it. However, the existing legacy system is old and it does not have documentation so the developers have to reverse engineer the new solution to fit into the legacy system.
Not readily deducible
Another important aspect is that the project must not be readily deducible for a competent professional.
The person that undertakes the work must be a competent professional in the field and they must find the work difficult. This illustrates that the project is difficult for a professional.
