How do I know if my business is carrying out research and development (R&D)?

You may be looking into making an R&D tax claim but are currently unsure on which of your business activities, if any, could qualify for as R&D. We can help.

Here at Cowgills R&D, we have a wealth of experience in helping our clients to not only claim back R&D tax relief, but also to identify each and every area of your activity and spending that could qualify for a claim.

We often find that when we task our experts with examining your potential claim, they find additional R&D spending to those you have been aware of. With this in mind, here is a short summary of how to assess R&D activity.

 

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What is R&D qualifying activity?

For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.

R&D qualifying activity, in terms of making a claim, could be any activity where cost was incurred looking to achieve such ends.

If you are creating a new or improved product, process or service, your business is probably carrying out R&D. R&D projects can include work undertaken for a client as well as your own business.

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What is the key criteria for R&D activity?

This question can be complex, as the government’s definition of R&D is very broad. Regardless of size or sector, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out qualifying activity. This might include:

• creating new products, processes or services
• making appreciable improvements to existing products, processes or services
• using science and technology to duplicate existing processes, products and services in a new way

Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.

Even if you’re not sure your project is scientifically or technologically possible, or you are unsure how to achieve it, you may be resolving uncertainties and therefore qualify for R&D tax relief.

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What questions should you ask when considering whether you qualify for R&D?

There are a variety of different considerations with preparing such a claim, but some of the key questions you should be asking include:

• Does my company have a project?
• Am I seeking an advance in a field of science or technology?
• Does the advance extend the overall knowledge or capability in the field of science or technology, not just the company’s own knowledge or capability?
• Does the project involve an uncertainty that competent professionals can not readily resolve and where solutions are not common knowledge?

A project can still be classed as R&D even if the advance has been achieved, but details are not readily available because, for example, they are a trade secret.

It’s important to remember that R&D is not always successful. If your project is ultimately unsuccessful, but sought a solution which was not evident at the outset, it could still be classed as R&D.

Judging which projects and activities qualify for R&D tax relief is an area where most businesses struggle, so if you need advice in this area contact us now.

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When does a project start and end for R&D tax purposes?

The project starts when work to resolve the uncertainty begins. This is when you have identified the technical issues that need to be resolved, and the current state of knowledge within that field of science or technology has not provided a solution to those uncertainties.

A project ends when the uncertainty is resolved, or the work to resolve it ceases. This is when you have a working prototype or material device/product or process ready to be tested or go into production, or if you decide not to move forward.

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How can I find out more about making an R&D tax claim?

To discuss whether your project qualifies for R&D tax relief get in touch with us by calling 01204 41 42 43 or emailing us via our Contact page.

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