What is considered R&D?

When it comes to taxes, R&D means a lot more than you might think. Some of the things you must do daily might count as qualifying expenses.
Certain factors must be met for the government to agree that an activity is new and, therefore qualified for R&D Tax relief. Because of this, HMRC has set up three key criteria that must be met for a project to be considered eligible:

• The actions done as part of the project must be in a certain field. It can be anything, from oil & gas, food processing, and software engineering to production and process engineering.
• The end goal of this project should be a step forward in that field, such as making something completely new, making the current product, process, or service much better, or making a copy of it.
• There needs to be some doubt about the project. This uncertainty could be caused by things like infrastructure problems, design problems, cost problems, trends in the business, etc.

Eligible R&D Projects

The following are four questions your firm should examine whether they can answer. Using this information, you can determine whether a project is eligible for R&D tax credits. If the project successfully achieves any of the following, it may be considered research and development.

1. Does the project remove uncertainty?

An expert in the pertinent discipline is uncertain if he or she does not know how something is accomplished or if it is even possible. When determining if there is uncertainty, all available evidence should be considered. Experts from within the organization will help determine whether or not there was uncertainty. It is also possible to solicit the opinion of outside specialists. However, those who have worked directly on the undertaking will be the most knowledgeable.

In overcoming this uncertainty, your client's project will be at the technological forefront of its industry. In addition, the existence of uncertainty demonstrates that your client's business has developed entirely original ideas and methods for the project.

2. Has it tried to make a step forward in science or technology?

The initiative must be designed to benefit the industry as a whole, not just your client's business. In other words, all businesses within your client's industry should be able to utilize the project's advancement. For instance, advances in food technology have made it simpler to produce vegan alternatives. This will result in decreased production costs, allowing food companies to reduce consumer prices.

What happens if another company develops a service, product, or process? Even if it is not publicly accessible or known, it may still constitute an advancement.

3. Can your initiative provide evidence of investigation, testing, and analysis?

This is equivalent to displaying your progress in a math problem. Your client must demonstrate that their project has undergone modifications and surmounted obstacles. Researching, testing, and analyzing through trial and error demonstrates the difficulty of the work. It also justifies the project's significance.

This is a crucial element of the technical narrative, which is a fundamental component of the R&D tax credit application. Consequently, it is important to consider early on whether your client has the necessary project data to substantiate their claim. Describing the interior workings of the project will also help demonstrate how your client surmounted the project's uncertainty.

4. Can this task be done by someone else who is qualified in this area?

The correct response is "no," as this indicates that your client's advance is breaking new ground. Remember that the client will have their own specialists working on the assignment. They will be able to describe the challenges and ambiguities they confront. A solution can be found by locating previous abortive attempts to find a solution.

Don't disregard claims for R&D tax credits based on failed or ongoing projects; they may still qualify.

Some qualifying project Examples are:

• Including cutting-edge technology in existing infrastructure, such as a factory.
• Material engineering and refinement. For instance, regular technology may be modified for usage in extreme environments like the depths of the ocean or the Arctic.
• Innovation in product design and manufacture.
• Changing how something now works so that it can do its job better.
• Creation of new structures and operations.
• System enhancements based on architectural research.
• Options for packaging, such as those that lengthen the time before the contents spoil.
• Innovations in Food Technology and Processing, such as studies of the piloting and scaling up of development samples with less preservatives, less salt, and gluten-free components.