What qualifies for R&D tax relief? The questions you need to ask

Ercan Demiralay FCCA on the areas to investigate within your business to understand what might be eligible for R&D tax relief.

When did you last review your outgoings to see where any savings could be made?

In the same vein, when did you last review your corporate tax profile to gauge if there are any tax breaks you could be making use of?

It's worth considering carefully because various projects your business undertakes might qualify as research and development (R&D). There are several misconceptions around this area which means many still miss out on potentially significant tax savings or cash back in the form of R&D tax credits!

That's why we’ve developed 12 questions to help you decipher from your activities what qualifies for R&D tax relief.

You'll be surprised by what does classify as R&D and many still think erroneously that it's only applicable to scientific based work. If you're improving processes in the business or attempting to, or developing a product or service and there's technical uncertainty surrounding the project, then there could be a case for making a claim.

12 R&D questions you need to ask about your business

If the answer is yes to any of the below then it's worth exploring with a tax advisor if it's worth making a claim to apply for this government backed tax scheme.

1. Have you developed your own software?

2. Have you developed internal processes that reduce costs and improve production times?

3. Do you carry out any design work that enhances technology?

4. Are you in the business of manufacturing products?

5. Has your company made particular advances in science and/or technology?

6. Are you using existing technologies in a unique way?

7. Are you combining 2 or more existing technologies in a way they have never previously been used?

8. Does your business function in any of the sectors/areas, in the section below, that tend to benefit (but not exclusively) from R&D related claims?

9. Do you have new products or services planned that could qualify based on any of the above?

10. Have you reviewed your existing products against this criteria?

11. Do you have any pending patents for products or services that could qualify?

12. Are you able to track R&D related income through your finance function?

Sectors that are common to a R&D claim:

The costs that qualify for claiming R&D tax credits?

Spend attributed to the following areas can in general make up your R&D claim:

• Software licence(s)
• Equipment and materials used in the R&D process or transformed by it
• Direct staff costs
• Sub-contractors, freelancers, and agency workers used for specific R&D project work
• Prototypes
• Contributions to independent research

What to do next?

Our questions are designed to simply get you moving in the right direction on this matter. If you’ve answered positively to any of the above then you need to get in touch with your accountant or tax advisor. That’s because the legislation around R&D is ever changing and sophisticated.

It requires significant knowledge of the law and how it's applied by HMRC to understand if a project will qualify and the likely sums involved. In that sense question 12 is crucial! Once the potential for a claim has been explored, the next step is to identify all expenditure in connection with your R&D work. So you will need good records, systems, and processes in place to obtain this.

This post was created on 29/09/2015 and updated on 28/01/2020.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.