What constitutes R&D in your eyes may be very different from HMRC’s interpretation, leading to at best, wasted time and at worst, an HMRC investigation.
You’ve heard there’s substantial money to be reclaimed using the UK Government’s R&D tax credit scheme. But what constitutes R&D in your eyes may be very different from HMRC’s interpretation, leading to at best, wasted time and at worst, an HMRC investigation. Let’s clear up the confusion and see if we can’t win you a pot of money!
R&D to you and me
To most people, research and development is one way of stimulating future growth by developing new products or processes to improve and expand a company’s operations.
Sounds simple enough and, if you’ll pardon the pun, the R&D shouldn’t be too taxing to identify.
HMRC’s definition of R&D for tax purposes
According to HMRC, R&D for tax purposes is a project that “seeks to achieve an advance in science or technology [through] the resolution of scientific or technological uncertainty”. Even if it isn’t successful, R&D is still deemed to have taken place.
So basically, in HMRC’s world, you’re undertaking R&D when you’re:
- overcoming technological uncertainties aimed at
- achieving an advance in technology,
- which isn’t readily deducible by a competent professional.
That’s a tad less simple and nowhere near as easy to identify – at least not without specialist knowledge.
Got it! Or have you?
Okay, so you’ve studied HMRC’s R&D tax relief guidelines (all 500-plus pages of them), and you’ve come to the following conclusion.
You’re probably NOT doing R&D because:
- all you’re actually doing is your day-to-day business, and from what you’ve read on HMRC’s website, qualifying R&D needs to be ground-breaking, blue sky, revolutionary, radical… WRONG!
- you work in manufacturing, engineering or food & drink, and from what you’ve read, qualifying R&D is probably restricted to hi-tech, pharmaceutical companies with research labs full of people in white coats. WRONG AGAIN!!
This is where the R&D message gets lost in translation and companies end up missing out on valuable tax relief (or even hard cash) that they could be entitled to.
And the good news is…
For the purposes of tax relief, qualifying R&D activity can:
- be undertaken in almost any industry; and
- include trying to make something cheaper, faster, smaller, larger or longer, etc. It can even include duplicating a product, process, service or device, as long as it’s in an appreciably improved way.
So taking an example from the software sector, according to HMRC:
- creating software that automates a previously manual task ISN’T R&D; but
- creating new encryption or security techniques that don’t follow established methodologies IS R&D.
The last word
With such a broad spectrum of qualifying R&D activity, it’s well worth talking to a trusted translator like Jumpstart, who speaks both your language and HMRC’s. It might just save you making an embarrassing and potentially costly faux pas!
