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Why Do Some Applications For R&D Tax Relief Fail?

4th Oct 2019
Brought to you by
tax cloud
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Although the scope for claiming R&D Tax Credits is incredibly broad, it still can’t be taken for granted that every application a company makes will be successful. The criteria is still very specific and the application itself contains a number of essential documentation requirements.

What are R&D Tax Credits and who can apply?

Research and Development (R&D) Tax Credit is designed to support companies that are working on particular innovative, scientific or technological advances. This could be anything from designing a new product, service or process to enhancing one that already exists. It can even be claimed on activities which were unsuccessful and to help companies which are loss-making.

Essentially, in order to qualify for R&D Tax Credits, the work must mean advancement in the overall field, not just for your own company. This means that an existing technology being used for the first time in your industry doesn’t count towards the relief.

The relief is received either as a reduction in a company’s Corporation Tax or as a lump sum.

Projects that count as R&D

Work undertaken must be part of a specific project to make an advancement in science or technology. It cannot be in a theoretical field, for example pure maths, or a social science like economics.

The project must also be in relation to your company’s trade – either one that will be started once the R&D activities are complete, or one which currently exists.

To receive R&D Tax Credits, you must be able to explain to HMRC how the work:

  • Looked to overcome a particular uncertainty (either technological or scientific)
  • Aimed to make a specific scientific or technological advancement
  • Recognised uncertainty and tried to overcome it
  • Could not easily have been achieved by a professional in the field

There are two branches to the scheme, one for small and medium sized enterprises (called the SME scheme) and one for larger organisations (the RDEC scheme).

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