What qualifies as R&D?
To qualify you need to carry out research and development work in the field of science or technology.
The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems. You don’t have to be conducting an extravagant new way of travelling into space, though, if you were, there’s a good chance your project would qualify!
So, this covers all kinds of work including creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. General product development itself does not qualify.
Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.
Things to consider
- 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 and not just the company’s own state of knowledge or capability?
- Does the project involve an uncertainty that competent professionals can’t readily resolve and where solutions aren’t common knowledge?
What costs can you claim?
You can only claim for when R&D is taking place during your project. So it is important to know when R&D is taking place. You can claim for R&D for the period that work to resolve the uncertainty starts. 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. It ends, or pauses, when that uncertainty is resolved or the work to resolve it stops.
Below is a timeline, an example guideline from HMRC that shows when qualifying R&D takes place within a project.
Here are some of the key costs you can claim for:
- Direct R&D staff costs – all staff costs are included as long as they are directly involved in the project, this doesn’t cover administration
- Externally provided R&D staff (%)
- Subcontracted R&D (SME scheme, different rules apply for RDEC scheme but you can still claim if you meet them)
- Software directly used in the R&D
- Consumable items (materials, utilities etc)
- Clinical trial volunteers
- Contributions to independent research
- Collaborative working
Generally, you cannot claim on capital expenditure (however, a generous 100% Research and Development Allowance may be due on capital assets, such as plant, machinery and buildings used for R&D activity)
Costs that you cannot claim
- the production and distribution of goods and services
- the cost of land
- the cost of patents and trademarks
If your company has been undertaking qualifying R&D and has not yet claimed R&D relief, you may make a backdated claim generally two years after the accounting period R&D took place