By Matt Storey, Partner
When determining whether an R&D tax relief claim is eligible, HM Revenue and Customs (HMRC) will primarily seek to understand whether it is truly work that seeks to advance a field of science or technology.
This means the work cannot be routine maintenance or upgrades, and generally will not involve cosmetic work or market research.
Proving that work is truly innovative can be a challenge, so it is worth understanding the key signs that HMRC look out for when assessing claims.
What does HMRC consider an advance in a field of science or technology?
Fundamentally, HMRC consider something to be an advance if it is either something that has physical consequences or is an increase in overall knowledge.
This is not to say that the work has to be entirely original, as very few innovations throughout human history could be considered wholly unique.
Instead, it is possible to adapt a system or process from one field of science or technology into another, provided the success of doing so is uncertain.
Any work must be undertaken with the goal of providing an appreciable, non-trivial improvement to the overall field of science or technology.
An appreciable improvement is defined by HMRC as:
- Creating a process, material, device, product, or service that increases overall knowledge or capability in a field of science or technology.
- Appreciably improving an existing process, material, device, product, or service
- Using science or technology to copy the effect of a current process, material, device, product, or service in a new or improved way
It is worth highlighting how HMRC states that “a process, material, device, product, or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade.”
How do I prove that I have sought an advance in a field of science or technology?
Record-keeping is the best way to support an R&D tax relief claim.
HMRC need to be able to verify the work that has taken place as well as understand the qualifying expenditure that has been put into the project.
Actual work needs to have been undertaken on the project within the financial year, as it is a portion of the money spent doing this that can be reclaimed as an R&D tax relief.
A good guide as to whether the work you have conducted qualifies is whether it involved experimentation from a competent professional.
If a competent professional, a qualified individual with experience in the field, cannot readily deduce how to achieve something, it is likely to qualify for R&D tax relief.
Be sure to maintain clear records at every stage of the R&D process to better enable more accurate, compliant claims.
We can help support an R&D tax relief application by guiding you through the HMRC guidelines and helping you understand your qualifying expenditure.
Don’t miss out on the vital funds needed to keep innovating. Speak to our team today.