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A project may qualify for R&D tax relief if it has a result that creates a breakthrough in knowledge or competence within your field. Additionally, this may also be the case if work is carried out to resolve an uncertainty.
Developing a new product is not sufficient enough to qualify. The key is the advancement achieved to the field as a whole and not solely to your own company. Therefore, an important condition that must be met is that the answer is not already common knowledge and that it cannot easily be resolved by a professional.
It can be anything from software development to a new internal process within your company.
How to show that your project qualifies for R&D tax relief
One of the key inquiries HMRC will be questioning is, has there been a technological or scientific advancement. Therefore, it is vital to establish exactly what the research and the development you have or will carry out has achieved and not just the end product. What specific details within the project has produced an advancement?
For example, developing an app for your company will require research and development in order to produce this app. But this is not sufficient enough to qualify. However, if you develop a new feature within the app that has not been produced before it may qualify.
The next question is regarding uncertainty, and this also refers to technological and scientific uncertainties. What have you faced and overcome during the projects timeline? Uncertainty that can be resolved via brief discussions internally or resolved easily by a professional within the field does not qualify. There is a requirement to be proof that it has not been done before and cannot not be easily worked out.
The processes and procedures used throughout the project needs to be explained in detail in order for HMRC to establish if the two questions above have been answered. The language used needs to be comprehensible and not only clear for a professional within the field. Elaborate further with evidence what has been done within the filed and not solely just your own company. Be sure to include what success and failures other professionals have had to prove that the answer is not readily available. If there is not sufficient information available publicly, proof of background, experience and knowledge along with a detail explanation of your case would be required.
The project or product developed does not need to be successful in order to receive R&D tax relief. This is because the focus is on the advancement made and the work carried out to resolve the uncertainties. Additionally, the uncertainty itself is not required to be worked out. So long as it can be demonstrated that the goal was a technological advance, even if the project ends in failure, it would still qualify for the relief.
The costs that qualify for R&D tax relief
The tax relief that is provided is directly linked to the costs incurred to achieve the advancement and the work required to overcome the uncertainty. For example, qualifying costs include staff costs, external staff, costs of materials and resources used, software used and prototypes etc. The key is that the costs have to be directly related to the R&D work carried out. If not 100% of the cost is used for the project then a reasonable proportion needs to allocated.
Therefore, we would recommend to keep a record of all work carried out directly related to the project and the associated costs.
To further assist you with establishing if your company is eligible for R&D tax relief, answer our 6 simple questions.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
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