R&D Tax Credits Explained – What Qualifies and are you eligible to make a claim? (incl. Video)

We outline the key requirements to satisfy an R&D tax credit claim and answers to FAQs to help you determine if you're eligible to make an R&D claim.
What are the requirements to satisfy an R&D Tax Credits Claim? Are you eligible to make a claim?

HMRC have recently made some significant changes to the R&D Tax Credits Scheme and how companies must now submit a tax credits claim.

Crucially, companies with legitimate R&D claims, who want to continue to use innovation as a key part of their business strategy, have no reason whatsoever to stop submitting their R&D tax credit claims.

So what are the key requirements to satisfy an HMRC R&D tax credit claim and are you eligible to make a claim?

In the short video above, our R&D tax credits expert, Jonathan Day, outlines the type of innovation projects that qualify for R&D tax relief.

If you’re considering an innovation project and you’d like Leonherman to help you determine if you can make an R&D claim or not, you can book a free consultation with Jonathan Day here.

What innovation projects satisfy the requirements of an R&D tax credits claim?

There’s an awful lot of technical speak on the web and on HMRC’s website about what constitutes a valid tax credits claim, but the core principles are very clear and that is:

1. You should be doing something that is a scientific advancement;

2. That presents some form of technological challenge i.e. you have to overcome a scientific or technological uncertainty;

3. You have documented how you tried to overcome the scientific or technological uncertainty in such a way that it could be audited should HMRC choose to do so; and finally

4. You have competent professionals working in your business who are skilled in the aims of the technical challenges that you are looking to overcome, and that you retained the intellectual property within the business after the project was finished.

Your innovation project may research or develop a new process, product or service or improve on an existing one. And the project must relate to your company’s existing trade, or one that you intend to start based on the outcome of your research and development.

If your R&D project is able to satisfy each of these key requirements, then it is likely that you will be eligible to make an R&D tax credits claim.

R&D Tax Credits Claims FAQs…

Q. What does ‘Scientific Advancement’ mean?

A. To qualify for R&D, your innovation project must be seeking to create an advance in the overall field, not just for your business. Scientific advancement means that the science/technology developed in your project moved beyond the ‘baseline’ level of science and technology at the start of the project.

When submitting your R&D tax credits claim, you will need to describe the baseline level of science and technology at the start of your project.

Q. How do I show that there was was a scientific or technological uncertainty?

A. After referring to all the available evidence available in the public domain, it should be possible to determine if the route or pathway to realising your technological goal is not well established or documented.

If not, and the chances of success at the outset of realising the technological goal were not guaranteed, it may be the case that the work concerned qualifies for R&D Tax Credits.

Q. How do you explain to HMRC how you tried to overcome the scientific or technological uncertainty?

A. In order to qualify for R&D tax relief, you must clearly document the research, testing and analysis you undertook to overcome the scientific or technological uncertainty.

Your research must be documented in a way that HMRC could review it should they choose.

Q. What are the roles of “competent professionals” in an R&D tax credits claim?

A. In order to qualify for an R&D tax credits claim, you need to show that the people working on your project are competent in that field of science or technology, and are skilled in the aims of the technical challenges that you are looking to overcome. You also need to explain why a competent professional could not have easily worked out your advancement before the project.

The competent individuals who work on your R&D project should explain the scientific or technological uncertainties that were involved and where possible, provide examples of when other attempts to find a solution have previously failed.

Q. What does not qualify for R&D?

You cannot claim R&D tax credits if the technological or scientific advance is in:

  • the arts
  • humanities
  • social sciences, including economics

What changed in August 2023 for R&D Tax Credits Claims?

From 8th August 2023, you now need to submit an ‘Additional Information Form’ to support your claim.

The new form must be submitted online and will need to include:

1. Your company’s unique taxpayer reference (UTR) – this must match your company’s tax return, employer PAYE reference, VAT registration number and SIC code;

2. The contact details of the main senior internal R&D contact (i.e. the company director) and any agent involved in preparing the claim;

3. The accounting period start and end date;

4. The scheme the claim is being made under (SME or RDEC);

5. Qualifying expenditure breakdown: Including total expenditure claimed for each qualifying project and qualifying indirect activities (QIA) for each qualifying project.

6. The number of projects claimed for and details of the claims.

As we outlined above, qualifying project descriptions must include:

  • The main field of science or technology your project relates to.
  • The baseline level of science and technology at the start of your project.
  • What advance in that scientific or technological knowledge your company aimed to achieve.
  • The scientific or technological uncertainties faced.
  • How your project sought to overcome these uncertainties.
  • Additional information can be provided to supplement what is required for the form. This can include details of claim methodology (including sampling method) and details of your competent professionals.

From 2023, the aspects of research that can be claimed for have also been broadened in scope. For example, costs linked to data licensing, cloud computing and mathematical advances will now qualify for R&D tax relief when, historically, data purchased and used in the R&D process could not be claimed.

How can Leonherman help to reduce the risk of your business having an R&D claim challenged or rejected?

Having an R&D claim reviewed or challenged can create significant costs and delay for a business. Here’s how Leonherman can help you to reduce the risk to your business:

1. We will meet with you to help you better understand what work aspects can and cannot be considered towards a claim for R&D Tax Credits;

2. We will ensure the work that you will be putting forward for a claim is structured accordingly into the relevant process elements of R&D, to ensure that the maximum potential claim value can be harnessed;

3. We will ensure your research is well documented in a manner that supports a review of the research by HMRC should they deem it necessary;

4. We will help you to engage legal advice, to ensure contracts with third parties, be they clients or subcontractors, enshrine the ownership of the research with you, the claimant;

5. As a regulated, independent specialist, we will compile your R&D claim, report and HMRC AIF, maximise the claim value and ensure key HMRC tests for any valid claim are met.

Do you have a valid R&D claim? Ask Leonherman’s R&D Tax Relief Experts…

Leonherman have a significant understanding of the R&D tax credits scheme. Crucially, we are an independent specialist, regulated by the ICAEW, and we are used to operating under regulatory scrutiny. We have always been expected to put our name alongside our advisory work.

If you’re considering an innovation project in your business, and you’re unsure as to whether you will have a valid R&D claim or not, book a free consultation with an R&D tax specialist here, call us on 0161 249 5040, or email: partners@leonherman.co.uk.

Important Disclaimer

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

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