LimeLight series – How do I know if I qualify?
I strongly believe that the lack of understanding of what does and does not qualify for R&D tax relief is the fundamental reason for the claim gap. In an earlier post we explained that only 20% of eligible companies claim the relief. The remaining 80% continue to miss out year after year. With the average value of an R&D tax credit claim for an SME company standing at circa. £62,000, this is a very costly mistake to make.
Although it is possible to go back up to two accounting periods, any period before this is lost forever. If your company could have claimed for a period before this, then unfortunately it is now too late. Therefore, if you believe after reading this article that your company could qualify I would strongly suggest speaking to a specialist – otherwise you lose the option and may miss out on potentially thousands of pounds in cash which could be due to you.
So how do I know if I qualify?
The official definition provided by HMRC states “R&D takes place when a project seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty”.
Most people scratch their head when they read this – so what does it mean in practice?
It is easier to understand if we split the definition into its 3 component parts (and rearrange the order slightly):
You need a project
The project needs to contain scientific or technological uncertainties
The project needs to seek an advance in science or technology
We shall look at each in turn below.
1. A project
A project could be from any one of the following:
New – Create a new product, process, service, software or device.
Improve – Make improvements to an existing product, process, service, software or device.
Duplicate – Copy a rivals product, process, service, software or device.
I would expect nearly every company could put a tick next to at least one of the above – after all companies constantly try to improve their products and processes to stay ahead of the competition.
2. Scientific or technological uncertainties
Unfortunately, it is not sufficient to simply have one of the above projects. The project also needs to contain one or more scientific or technological uncertainties to qualify. What are these?
To understand, we need to define the concept of a competent professional and understand what HMRC look at when assessing a claim.
A competent professional is what it says on the tin. This is a professional from within your industry with the skills, experience and qualifications to be regarded as competent. Note we are not saying they are experts, they are just competent.
In terms of what HMRC look at, they are primarily concerned with the journey of R&D rather than the outcome. Indeed a project could be a disaster (and therefore there is no output) and still qualify.
If you think of an R&D project as a journey from point A (start of a project) to point B (the end), what HMRC want to see is that there were challenges along the road that were not readily deducible by a competent professional nor easily overcome using publically available information.
If your project had one or more of these fundamental challenges, which took more time and effort to overcome, then congratulations – it is likely you could make an R&D tax credit claim.
3. Seek an advance in science or technology
What is science or technology? Basically it is knowledge. By overcoming the above scientific or technological uncertainties, you would have needed to advance this knowledge.
By definition, a technical uncertainty exists when there is no publically available information which could be used to address the challenge. Therefore, by solving the challenge you have advanced the state of knowledge within your industry.
A caveat is needed here. It is not sufficient to only advance knowledge within your own company. To understand this, it is easier to describe a scenario to you. Imagine I put you in a room with 100 other competent professionals from your industry and got you to explain what you did. Would they appreciate your work, or would they say that anyone of them could have done what you have achieved, as the knowledge was publically available?
Therefore just because the knowledge isn’t within your company, overcoming a challenge doesn’t imply an advance in science or technology if the knowledge was already available in your industry.
You may be thinking this is quite general – indeed it needs to be. The legislation needs to cover a manufacturing company, a food producer, an engineering firm, a pharmaceutical company, a software engineer etc. The list is endless. The basic principle is that you need a project which involved challenges that were not easy for a competent professional within your industry to overcome. If this is the case, you could be eligible to make an R&D tax credit claim – it is as simple as that!
LimestoneGrey is a firm of chartered R&D tax advisers who specialise solely in helping companies to make successful R&D claims and ensuring that their claims are fully optimised, so you get the full amount of relief you are due. We do this completely risk free – if HMRC do not accept your claim, then there is nothing to pay! We also provide a free no obligation initial consultation, and do not tie you into any long-term contracts – so you really do have nothing to lose. If you think there is a chance your company could benefit from the relief why not request a call back from one of our chartered R&D tax specialists who would be happy to discuss your business and whether you could make a successful claim.
The above article is part of the LimeLight Campaign. Over the coming weeks we shall be posting articles to help explain what R&D tax credits are, how they work and the benefits they could have on your business. Please follow us by using one of the links below to ensure you stay up to date with future articles.
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