4 ways to find out whether your project qualifies for R&D tax credit
Often businesses are unaware that the projects they are working on qualify as R&D and thus allows them to claim R&D tax credits. They might be too preoccupied with the actual running of a business to investigate. They might not even be aware of the opportunity to claim R&D tax credits on their projects.
These are likely the reasons if your client is an SME. This is because leveling up and expanding a business requires constant attention. The work required at this developmental stage is also draining on time and resources. Whatever the reason though, these are the types of projects that are most likely to qualify as R&D.
It’s therefore especially important for SMEs to know what projects they can claim for, as they will benefit the most from the financial boons.
Your client is missing out
The scope of work that is R&D is vast and ever-expanding. In recent times, the Covid-19 pandemic has forced companies to innovate.The global pandemic has led to more employees working from home, budget cuts, and companies having to re-think business functions and processes. This has resulted in more and more businesses exploring technological spheres and looking to software development. As such, it’s very likely your client’s work will qualify for R&D tax credits.
The following broad project areas are ones that qualify for R&D tax credits:
- Adaptation of standard technology for niche uses.
- Development of new systems and processes.
- Improving the performance, efficiency and/or capacity of existing systems and processes.
- Designing and producing technically improved products.
- Packaging solutions (improving product shelf life for instance).
As discussed on our previous blog about qualifying R&D expenditures, the claimable costs within each project are mostly made up of general running costs. As a result, there is always a large amount of expenditure that is claimable within each project. Your client could therefore be missing out on financial benefits if they don’t identify all their qualifying R&D projects.
What qualifies a project as R&D
HMRC states on the UK government website, “The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science - like economics - or a theoretical field - such as pure maths. The project must relate to your company’s trade - either an existing one or one that you intend to start up based on the results of the R&D”.
However, using this definition can still be unclear. To break it down, your client should consider if they can answer the following four questions. This will help them figure out if a project qualifies for R&D tax credits. If the project achieves any of the following, it can qualify as R&D.
1. Does the project overcome uncertainty?
Uncertainty exists when an expert in the relevant field doesn’t know how something gets done, or if it is even possible. All available evidence should be on hand when deciding if there is uncertainty. It will help to get experts from within the company to review whether there was uncertainty or not. It is also possible to enlist the judgement of external experts. However, those that have worked on the project themselves will be most knowledgeable.
In overcoming this uncertainty, your client’s project will be on the frontline of technology within the field. Furthermore, the existence of uncertainty shows your client’s company has forged wholly original ideas and methods in the project.
2. Has it sought a scientific or technological advance?
The purpose of the project must be to benefit the field as a whole, not only your client’s business. In other words, every business within your client’s industry should be able to utilise the advancement their project will result in. For example, developments in food technology resulting in vegan alternatives that are easier to produce. This will lead to lower production costs, allowing food companies to reduce prices for consumers.
What if a service, product or process gets developed by another company? It can still be an advance even if it is not publicly available or known about.
3. Can your project show research, testing and analysis have taken place?
This is the equivalent of showing your working in a math question. Your client should be able to prove their project has undergone changes and overcome obstacles. The trial and error of researching, testing and analysing shows the difficulty of the work. It also justifies the importance of the project.
This is an essential aspect of the technical narrative, which is a crucial part of the R&D tax credit application. Therefore, it's worth considering at an early stage if your client has the necessary project data to support their claim. Detailing the inner workings of the project will also help show how your client overcame the uncertainty in their project.
4. Could another professional in the field conduct this work?
The answer here should be no, as it shows your client’s advance is covering new ground. Keep in mind your client will have their own professionals working on the project. They will be able to explain the difficulties and uncertainties they face. Otherwise, finding previous unsuccessful attempts at finding a solution will provide an answer.
Unsuccessful projects or projects currently in progress can still qualify for R&D tax credit claims, so don’t dismiss these out of hand.
Get expert help with made.simplr
Using eligibility calculator software and enlisting the help of R&D tax specialists is a surefire way to ensure your client identifies all their R&D qualifying projects. made.simplr provides both!
Our R&D tax credit software was developed by experts with intimate knowledge of what qualifies as R&D projects. With it, your client is able to reliably and quickly identify the projects they can claim for. For accountants, our claims management and Xero integration features enable you to complete work for your client efficiently, and on time.
Book a demo today and find out how much you could be saving your client.
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