They key thing about Research and Development (R&D) is that R&D itself is about solving problems. Many accountants are put off R&D advice because the definition of qualifying activities is complex and subtle.
The R&D claim should talk about an R&D project that HMRC states should involve an “advance” in the field of science or technology which is defined as an improvement in overall knowledge or capability in a technical field.
To help you spot a qualifying project it is a common mistake to assume that because a company's core activity isn't innovative that it won't be able to make a claim. Claims can be made on minor aspects of the business if they are sufficiently innovative. The key phrase in the rules is 'activities which directly contribute to achieving an “advance” in science or technology through the resolution of scientific or technological uncertainties'.
In other words, problem solving.
If the best way to do something isn't common knowledge it can be a problem for a business addressing that issue. This is the uncertainty mentioned.
The time, effort and cost involved in solving that problem is what is meant by activities addressing uncertainties.
The problem has to have a physical element to it for it to qualify. Commercial problems or uncertainties do not fall within the scope of the relief. In order to identify "advances" ask yourself the following:
Does your solution lead to:
1 – A new process/device/process/product
2 – Improved capabilities or new knowledge in your market
3 – Improved ability to service markets more efficiently
4 – Ability to integrate with multiple platforms, at scale, size and at least cost
5 - Being significantly faster than previously known in your market
The Clarity Test
Although it isn’t described in these terms in the legislation, we find it useful to think of an ‘clarity’ test. This means, if the advance that the business has made would be clear to a competitor looking at the same problem, then there won’t be a valid claim.
If the way to do something or achieve a certain outcome isn’t clear to a competitor then there may well be a claim.
Again this goes back to ‘what is it that makes the business competitive’; the R&D relief is designed to help businesses get ahead of their competition so if what they are doing doesn’t get over the clarity test they can’t make a claim.
Our Simple R&D Tax Credits Guide
If you would like to learn more, read our R&D Tax Credits Guide. As chartered tax specialists in R&D Tax Credits we would happily talk to you about what we can offer you and to assess your eligibility. For an immediate callback please contact us.