03/05/2024
Unlock the potential of your innovations with HMRC R&D Tax Credits!
Though HMRC’s R&D incentive can be rewarding, it does stipulate that all innovations (advancements, appreciable improvements, creations or developments) constitute to R&D only as per HMRC’s criteria for claiming R&D Tax Credits. This is not to say a company should disqualify themselves because they are unsure; we see many companies who don’t think they qualify for HMRC’s R&D incentive actually undertake many projects that satisfy the eligibility criteria.
On the other hand, we also see many companies who think they qualify, and despite the merited innovations (in their own right) the projects they have undertaken do not qualify. This often leads to companies feeling frustrated or disheartened about their work. It is absolutely imperative that companies understand the kind of projects that may qualify before considering putting them forward.
One of (and not the only) key pillars to understand before even considering eligibility for your project is that the company's project must be clearly linked to a field of science and/or technology, and through undertaking this project the company is seeking to or has achieved an advance in that field. There are many fields of science and technology that exist, including various multidisciplinary niches that overlap or intertwine various fields but if the field of science or technology your project is seeking to advance is not made clear in the details provided for your project because you have not addressed any specific uncertainties belonging to a field of science or technology, you can assume immediately your project will not qualify before even considering any of the other eligibility criteria, irrespective of how innovative or ingenious you feel your project may be.
Focusing on the latter, to give context as to some of things that do not constitute R&D, we will share with you insight into a company who came to us at the back end of last year after HMRC had rejected their claim. They asked us to review the claim for them.
Upon review of their submission covering 9 projects, along with HMRC’s enquiry documents, it was clear that the company had misunderstood some key fundamentals and were not quite grasping why their projects did not qualify.
Picking out one project in particular, in this instance, the company had seeked to improve a game called swing ball. Even though the company in its own right was seeking to innovate and create new / appreciably improved products, it was unclear to see what the scientific or technological merits of the project were, and relative to this how their development seeked to or achieved an advance in a field science or technology by overcoming specific scientific or technological uncertainties.
To give context, based on the information provided in the claim, it seemed the design of an existing product was being amended, and the company mentioned in its submission that the product will feature an integral carry handle, a water plug, an easy peel lid, will be self-standing, vertical stacking and having balancing feet. When referring to the scientific or technological uncertainties, the company just listed the requirements they intended for the product to feature. There was also no information provided to show why a competent professional (another key pillar that we will save for another time) within the field could not carry out these tasks business as usual.
The criteria clearly states the routine analysis, copying or adaptation of an existing product, process, service or material, will not be an advance in science or technology. Similarly, simply taking a pre-existing product and applying features in a new way does not advance or extend the overall knowledge or capability (in a field of science and technology) as the product itself already exists.
With any new or evolving process or product, challenges are to be expected, however in this instance HMRC expect that a competent professional could deduce pre-existing solutions and that these are challenges for the company, not uncertainties in an overall field of science and technology. If your projects do not address specific scientific or technological uncertainties and don’t seek to make or achieve an advance in a field of science or technology you can assume immediately that your project does not qualify.
HMRC’s verdict on the project, from the available information, was that none of the information provided by the company demonstrated how an advance in science or technology was achieved or attempted but rather the company had made improvements to a game that was a readily available product for commercial benefit.
The company, at this stage, had not provided any information to show how their project achieved or attempted to achieve an advance in a field of science or technology. Advancements in science or technology cannot be made or attempted if the project did not address specific scientific or technological uncertainties in the first place. If this was made clear or presentable, the grounds for the claim on that project may have been different.
We share this not, not to put off companies from applying or to be scared of claiming R&D but rather to demonstrate some of the foundational misunderstandings we see companies routinely fall short on.
HMRC’s R&D incentive is available to businesses of all sizes and across various sectors, this incentive encourages and rewards innovation, regardless of profitability.
If you want to speak with us about your projects or for review of your submissions by one of our chartered tax advisors, you can get in touch with us at [email protected]
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