How can my client demonstrate that their project is eligible for R&D tax credits?
When your client submits their research and development (R&D) tax relief application, they will need to demonstrate that their project has met HMRC’s strict definition of what R&D actually is. This applies regardless of whether they are claiming under the SME branch of the scheme, or RDEC.
Even as an experienced business accountant it’s not always easy to decipher such criteria, so we’ve broken it down into a few simple questions that your client will need to consider. Once you’ve worked out the terminology (and contacted the experts at Myriad Associates to ask any questions) you’ll hopefully be far more comfortable with what everything means.
A quick guide to R&D Tax Credits
R&D Tax Credits can be an absolute lifeline to businesses, offering vital funding to UK companies of all shapes and sizes. The scheme is administered by HMRC and was launched in the year 2000. It’s designed to encourage a culture of innovation and boost spending on R&D projects for companies up and down the country.
The scheme is one of the government's most lucrative and popular incentives of its kind, offering up to 33.35% of a company's R&D expenditure. The money can be received either as a cash repayment, or as a reduction in Corporation Tax.
Every year around 40,000 UK companies take advantage of the R&D Tax Credits scheme, claiming nearly £3.5 billion in tax relief. Even if the R&D work wasn’t particularly recent, your client can still benefit by making a claim that goes back as long as two accounting periods.
Although your client doesn’t legally have to, we strongly recommend that a claim for R&D Tax Credits is accompanied by a report that serves to justify the uncertainties and technical advancements, and details the qualifying expenditure that was incurred. This is where we can assist you.
To find out more about R&D tax relief in detail, please take a look at our R&D Tax Credits page.
What is the scientific or technological advancement that your client was looking to make?
It’s important that your client doesn’t solely focus simply on the product, service or process that they’re looking to market. For R&D Tax Credit applications it’s all about the actual aim of the project - what was it trying to achieve?
Your client needs to be fully aware of what new technological or scientific knowledge they are aiming to gain. Remember, ‘advancement’ is not solely about your client’s business or the industry it’s in, it’s about progressing technology or science as a whole. This means it’s essential to pay specific attention to the definition of science, but keep in mind it doesn’t refer to any social sciences. In order to be true R&D, the project cannot just be a commercial breakthrough, it needs to be carefully picked out from the other work the business is undertaking.
What is the ‘uncertainty’ your client was looking to address?
Not every problem your client is attempting to solve will come under the term ‘R&D uncertainty’. It’s up to them to clearly and concisely explain their technological or scientific uncertainty when making their claim for R&D tax relief. It’s important here to specify the uncertainties and where their boundaries lie.
When there is no publicly available knowledge about a particular problem, and there’s been some financial risk involved in solving it, then R&D Tax Credits are likely to apply. Essentially, the problem should not be easily solved by a competent professional already working in the field.
The R&D work will not have been based on an uncertainty if:
- Any expert working in your client’s field could reach a solution by simply discussing the knowledge already in existence with their peers.
- The concept being explored is only new to your client’s company or field, but already exists elsewhere.
- The technical issue being explored is similar to that explored in previous work.
Consider what methods they used to resolve their uncertainty
When making an application for R&D tax relief, your client will also need to explain their investigation and analysis in detail. It should be a solid written overview showing what they did, what the results were, and what the impact has been of those results.
Remember, your client’s company will still have completed R&D even if they don’t manage to solve the uncertainty they were researching. This is also the case if the project ultimately failed commercially.
What is the context of your client’s research?
There are a couple of parts to this. The first is about being about to demonstrate clearly that the uncertainty could not have been solved by research that already exists in the field. This is actually fairly straightforward; it’s simply showing that others have tried and failed to do the same thing, or showing where progress has been made but the way in which it is done is a Trade Secret.
If your client operates in a very niche field with limited information available, then they will need to use professional experts in explaining why their work is a technological or scientific uncertainty. HMRC are likely to ask for proof that such professionals are indeed competent in their field. Evidence here could include showing their current CV with all their relevant experience and qualifications for example.
We can help with your client’s R&D tax relief claim
Identifying what the technological or scientific uncertainty is your client has solved - or attempted to solve - is key to R&D Tax Credit success. An expert outside eye can be a massive help amidst all the figures, reports and paperwork. At Myriad Associates we’re interested only in the R&D aspect of your work and will swiftly discount anything that isn’t relevant to your client’s claim.
As your client’s business accountant, you may have questions or concerns about the claims process and how long it will take. If so, give us a call on 0207 118 6045 or use our contact form and we’ll be pleased to get back to you. Our initial questions will determine if your client is likely to make a successful claim and if so, we can work with you to facilitate it.
Average claim values for SMEs currently stand at £65k - a large amount of money in anyone’s books.
Whatever your query on R&D tax relief, let us help you to help your client. We’ll be happy to work alongside you for as long as you need us.