R&D Guidelines - in our words
The DSIT guidelines are critical when it comes to qualifying projects for R&D tax purposes, but they are not the easiest thing to read. To make your life easier, we have gone through the guidelines and re-written them in a more understandable and direct manner for your use.
What Counts as Research and Development (R&D)?
What is R&D for Tax Purposes?
R&D happens when a project is focused on achieving an advance in science or technology. This means working to push the boundaries of what’s currently possible in your industry, whether that’s creating something entirely new or making meaningful improvements to what already exists.
Which Activities Qualify?
🔹 Direct Contributions: Activities that directly work to solve a scientific or technological uncertainty are R&D. These could involve testing, experimenting, or problem-solving to overcome specific challenges.
🔹 Indirect Contributions: Certain supporting activities such as project management or feasibility studies may also qualify as R&D.
What Doesn’t Qualify?
Activities that don’t directly help resolve the project’s scientific or technological uncertainties, or are unrelated supporting tasks, won’t qualify as R&D.
Advancing Science or Technology: What It Means for Your Business
What is an Advance?
An advance in science or technology goes beyond your company’s internal knowledge or capability. It’s about contributing to the overall understanding or innovation within a field.
What Does an Advance Look Like?
✔️ Tangible Outcomes: Developing a more efficient cleaning product or creating a process that reduces waste.
✔️ Intangible Outcomes: New knowledge, cost-saving innovations, or operational improvements.
What Doesn’t Count?
Simply using science or technology isn’t enough—your work must push boundaries or solve challenges for the broader field.
Examples of Qualifying Projects
Your project could qualify as R&D if it:
✔️ Extends overall knowledge or capability in a scientific or technological field.
✔️ Creates a new or improved process, product, material, or service that represents a step forward.
✔️ Makes significant improvements to existing processes, materials, or products using scientific or technological changes.
✔️ Duplicates the functionality of an existing product or process in a completely new or better way (e.g., achieving the same results with a fundamentally different method).
Even Unfinished Projects Count!
Even if your project doesn’t fully achieve its goals, it can still qualify as R&D. Attempting to solve a problem or achieve an advance still matters!
What About Trade Secrets?
If others have made similar advancements but the details are not publicly available (like trade secrets), your efforts to achieve the same can still count as R&D.
What Doesn’t Qualify?
Routine tasks like basic analysis, copying, or minor adaptations of existing products or processes typically don’t qualify as R&D.
What is Scientific or Technological Uncertainty?
When Does Uncertainty Exist?
Uncertainty exists when it’s unclear whether something is scientifically possible or technologically feasible. If a competent professional in the field can’t easily figure it out, it’s likely an uncertainty.
This often applies when trying to:
✔️ Turn a proven scientific concept into a cost-effective, reliable, and reproducible solution.
✔️ Overcome system-level challenges like integrating new technologies or scaling up production. 🏗️
❌ What Doesn’t Count as Uncertainty?
🔹 Problems that can be solved easily by an expert.
🔹 Routine improvements or optimisations that don’t significantly change the underlying science or technology.
What is System Uncertainty?
Understanding System Uncertainty
🔹 System uncertainty occurs when the complexity of a system creates challenges, rather than uncertainties about individual components.
For example, while individual components (like chips in electronic devices) are well understood, how best to combine them to achieve the desired outcome may still be uncertain.
When Routine Methods Don’t Qualify
Simply assembling components or software using established methods doesn’t involve significant scientific or technological uncertainty. This work isn’t R&D as it doesn’t push knowledge or technology further.
Combining Existing Technologies
Even if the principles for integrating standard technologies are known, there can still be uncertainty if it’s unclear how to combine these components to work together effectively.
If a competent professional can’t easily figure out how to integrate these elements for the intended purpose, that would qualify as R&D.
What is Considered Science for R&D?
✔️ What Qualifies as Science?
Science involves the systematic study of the physical and material world, focusing on its nature and behaviour.
✔️ What About Mathematics?
Starting from April 2023, mathematical advances are officially recognised as science for R&D purposes!
✔️ Does it Apply to All Fields of Science?
Yes! These guidelines apply to any branch of science, no matter how specialised your area of work may be.
✔️ What Qualifies as Technology?
Technology is the practical application of scientific principles and knowledge—turning science into real-world solutions.
What is an R&D Project?
Defining a Project
An R&D project is a series of activities planned to achieve an advance in science or technology.
What About Larger Commercial Projects?
An R&D project can be part of a larger commercial initiative, but only the activities addressing scientific or technological uncertainties qualify as R&D.
Does a Project Have to Succeed to Count as R&D?
❌ No! Success is NOT required!
✔️ What matters is the intention to achieve an advance, not whether it was fully resolved.
🔹 Even if a project stops due to technical or commercial reasons, the scientific or technological planning work still counts as R&D!
What is Overall Knowledge or Capability in a Field?
Understanding Overall Knowledge
Overall knowledge refers to the publicly available knowledge in a field of science or technology.
Advancing Overall Knowledge
Even in these cases, your work may still qualify as R&D:
🔹 Multiple companies working at the forefront of a field.
🔹 Previous work exists but is a trade secret (not publicly known).
🔹 The advance is known but how it was achieved isn’t widely available.
When Does R&D Begin and End?
When Does R&D Start?
R&D starts when work begins to resolve scientific or technological uncertainty.
When Does R&D End?
R&D ends when:
✔️ The uncertainty is resolved or work stops.
✔️ The knowledge is documented 📑 for use by professionals.
✔️ A prototype or pilot version is produced.
✔️ What Happens After R&D Ends?
Even after R&D ends, new scientific or technological problems may arise. If these problems involve uncertainty, they may require new R&D efforts!
Routine maintenance or fault-fixing does NOT count as new R&D.
Scientific or Technological Planning and R&D
When Does Planning Count as R&D?
Scientific or technological planning qualifies as R&D when it aims to resolve scientific or technological uncertainties. This includes:
✅ Defining scientific or technological objectives.
✅ Assessing the feasibility of the project.
✅ Identifying key uncertainties.
✅ Estimating time, resources, and scheduling for R&D.
✅ Outlining and managing scientific or technical work.
What Doesn’t Count as R&D?
Planning activities unrelated to resolving scientific or technological uncertainties do not qualify as R&D. Examples include:
❌ Market research for commercial opportunities.
❌ Financial, marketing, or legal assessments.
While these activities are crucial to project success, they are not part of the R&D process.
What Counts as an Appreciable Improvement?
What Qualifies?
An appreciable improvement involves significant scientific or technological advancements that go beyond minor upgrades. The improvement must be recognised as a genuine, non-trivial enhancement by professionals in the field.
🔄 Adapting Knowledge from Other Fields
Adapting technology from another field can count as an appreciable improvement if it results in a meaningful enhancement.
What Doesn’t Qualify?
⚠️ Applying existing technology with minor adjustments.
⚠️ Bringing a product up to industry standards without technological advancement.
The threshold for an appreciable improvement depends on industry norms and professional consensus.
What Activities Count as R&D?
Directly Contributory Activities
R&D activities must address specific scientific or technological uncertainties. Examples include:
🔹 Developing software, materials, or equipment for R&D.
🔹 Scientific or technological planning.
🔹 Design, testing, and analysis of new concepts.
Non-Qualifying Activities
These activities, though relevant to innovation, do not count as R&D:
🚫 Commercial and financial activities.
🚫 Non-scientific or non-technological work.
🚫 Routine production and distribution.
🚫 Administrative and support services.
Qualifying Indirect Activities
While not directly resolving uncertainty, these activities support R&D:
🔸 Scientific and technical information services.
🔸 Administrative, HR, and finance tasks related to R&D.
🔸 Ancillary activities like leasing labs or equipment maintenance.
🔸 Training for R&D teams.
🔸 Feasibility studies guiding R&D decisions.
Prototypes and Pilot Plants in R&D
Prototypes
🔹A prototype is an initial version of a product, process, or system. Designing, building, and testing prototypes typically qualify as R&D. However, once scientific or technological uncertainty is resolved, further modifications do not count as R&D.
Pilot Plants
🔸A pilot plant is used to test operations before full-scale production. Work on pilot plants qualifies as R&D until all scientific or technological uncertainties are resolved.
Design Work and R&D
When It Counts
✅ Design activities qualify as R&D if they help resolve scientific or technological uncertainties.
When It Doesn’t Count
❌Design work focused on aesthetics, usability, or standard implementation without technological advancement does not qualify as R&D.
Aesthetic Improvements and R&D
When Aesthetic Work Counts
🔄 While cosmetic changes alone do not qualify, R&D is applicable when achieving an aesthetic outcome requires scientific or technological innovation.
Information and Content Delivery in R&D
When It Counts
✅ Projects that improve the scientific or technological methods for creating, manipulating, or transferring content qualify as R&D. Simply delivering content through existing technology does not.
The R&D Process: Key Takeaways
Market Research Isn’t R&D
🔸Understanding customer preferences is not R&D, but it may lead to identifying R&D opportunities.
Planning and Specifying the Product
🔸Developing technical specifications to resolve uncertainties counts as R&D. However, patenting, marketing, or deciding cosmetic features does not.
Prototypes and Testing
Developing and testing prototypes as part of resolving technological challenges is R&D.
🔹 Post-Prototype Adjustments: If resolving an issue requires new scientific or technological work, it qualifies as R&D.
🔹 Routine refinements: If a solution is straightforward, further work does not qualify as R&D.
R&D Guidelines Apply Universally
✅These criteria apply across all branches of science and technology that are eligible for the relief. The methods used to resolve uncertainty, whether software, hardware, or another approach, are equally valid for R&D purposes.
Advance in Science or Technology - Additional Points
Using Existing Knowledge
⚠️Utilising existing knowledge in a routine manner does not qualify as R&D. However, applying it to generate new insights or develop new capabilities may count.
Seeking New Information
⚠️ Simply gathering information is not R&D unless it directly contributes to scientific or technological advancement.
Lower Specifications Can Still Be R&D
✅Developing a product with lower specifications can qualify as R&D if it resolves scientific or technological uncertainties.
Scientific or Technological Uncertainty - Additional Points
Multiple Advances in One Project
🔹 A single project may address multiple scientific or technological advances. However, only the aspects involving uncertainty count as R&D.
Adapting Software for Another Field
🔹 Modifying existing software for use in a new scientific or technological context may qualify as R&D if it helps resolve uncertainty.
Testing as Part of R&D
Scientific or Technological Testing
Testing qualifies as R&D when it resolves uncertainty.
🔹 After Finalisation: Routine post-development testing does not qualify.
🔹 Design Flaw Discovery: Addressing flaws that require new technological solutions qualifies as R&D.
Cosmetic and Aesthetic Effects
Functional vs. Aesthetic Changes
✔️ Functional fabric development: R&D.
❌ Market testing the fabric’s appeal: Not R&D.
✔️ Addressing scientific uncertainties in texture or structure: R&D.