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 (although this would probably qualify!), you just need to be solving uncertainties.

So, this covers all kinds of work including

• creating new processes, products or services,
• making appreciable improvements to existing ones
• using science and technology to duplicate existing processes, products and services in a new way.

General product development itself does not qualify. You can claim for creating something that isn’t new if the information to develop that is not public knowledge (e.g. a trade secret).

Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.  

• 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/publicly available?

You can only claim for when the actual R&D is taking place – so it is important to know this. You can claim for R&D from when the work to overcome the uncertainty starts. This is generally when you have identified the technical issues that need to be resolved and determined that a readily available solution is not currently available. 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 (this varies depending on the scheme being claimed under)
• Software directly used in the R&D
• Consumable items (materials, utilities etc)
• Clinical trial volunteers
• Contributions to independent research (no longer available for Accounting Periods starting on or after 1 April 2024)
• Prototypes
• 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).

• The production and distribution of goods and services
• The cost of land
• The cost of patents and trademarks
• Rent

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.

You may be required to submit a Pre-Notification for an R&D claim if you have not made a claim before or in the previous three years.