Wondering whether you’re eligible for R&D Tax Credits? GrantTree’s experts are here to help.
If you’ve been keeping up with GrantTree’s blog, you’ve probably read lots of wonderful things about R&D Tax Credits, the multi-billion-pound government programme offering financial rewards to companies investing in innovation. And by now, you might be wondering whether your company can access this generous and inclusive scheme.
Well, while R&D Tax Relief is certainly more accessible than other kinds of government funding – as last year’s unprecedented surge in first-time claimants showed – it is also protected by a strict set of eligibility criteria, which are meticulously applied by HMRC.
These criteria are lengthy – the government’s guidelines on the definition of R&D for tax purposes are 12 pages long – and hinge on complicated ideas like scientific advances and technological uncertainties. As a result, it can be extremely difficult to work out which, if any, of your projects actually qualify for R&D Tax Credits.
We don’t think things shouldn’t be this difficult. That’s why we’ve written this blog unpacking the R&D Tax Credits scheme’s eligibility criteria and how to apply them to your business.
Hopefully it gives you a better sense of whether your company can claim R&D Tax Credits.
If you want to know whether you’re eligible for sure, the best thing to do is speak to an R&D Tax Credits specialist like GrantTree.
Our tax and technical team will be happy to review your projects and determine whether you should be making a claim.
You can also check out our R&D Tax Credits quiz, which can give you an initial eligibility assessment in just 30 seconds!
R&D Tax Credit claims are made up of a series of ‘projects’, which are like slices of your development work.
Each project is made up of direct and indirect activities you perform to achieve a specific development goal. To create a new software feature, adapt a construction method for a specific need, or upgrade an internal process, for example.
HMRC says a project starts when you encounter a scientific or technological uncertainty, and stops when the uncertainty is resolved. We explain what uncertainties are below.
But essentially this means that early-stage activities like market research and initial ideation do not count as eligible R&D. Neither do marketing, upscaling and distribution on the other side. This is important to bear in mind when thinking about your eligible costs.
Importantly, all the projects you claim for must be independently eligible for R&D Tax Credits.
So, as we look at the scheme’s various eligibility criteria – except Criteria 1 – make sure you apply them to each of your projects. Not your company or development work as a whole.
The way we see it, there are seven key criteria that companies have to meet to qualify for R&D Tax Credits. They are:
- Are you subject to UK corporation tax?
- Were you seeking a scientific or technological advance?
- Were you trying to make something commercially viable?
- Did you encounter scientific or technological uncertainty?
- Did you experiment methodically?
- Are your costs eligible for R&D Tax Credits?
- Was your development work overseen by a competent professional?
Let’s look at each of these in more detail.
Criteria 1 – Are you subject to UK corporation tax?
R&D Tax Credits are only available to companies that are subject to UK corporation tax.
If you’re unincorporated, incorporated in another country, or don’t have to pay corporation tax, you can’t claim R&D Tax Relief.
This is why charities, universities, limited liability partnerships, and sole traders cannot claim R&D Tax Credits.
Criteria 2 – Were you seeking a scientific or technological advance?
According to HMRC, companies perform R&D when they try to acquire the knowledge or capabilities needed to achieve a specific technical objective. To add an innovative feature to a software package, for instance.
This ‘acquisition of knowledge’ is the advance mentioned in this criteria.
In terms of your project, you need to have been developing a part, product or process that didn’t exist before. If it did exist before, it needs to have been made by a company that is keeping its methods secret.
Criteria 3 – Were you trying to make something commercially viable?
Your development must be pursuing a product, technique or tool designed to generate revenue.
That’s not to say the development work can’t be ‘blue sky’ in nature. But its ultimate goal must be to make money.
Criteria 4 – Did you encounter scientific or technological uncertainty?
HMRC needs to see evidence that you ran into scientific or technological uncertainty.
This is a point in your development work where you didn’t know how to move forward and no amount of public information or in-house expertise could help you.
If you reached a point like this, chances are you encountered the kind of uncertainty HMRC is looking for.
Criteria 5 – Did you experiment methodically?
So you encountered uncertainties in your development work. But how did you attempt to solve them?
To meet the government’s definition of R&D, you need to have undertaken systematic experimentation. In other words, you tried something, recorded the results, refined your process, then tried something new.
The government does not consider ‘hit and hope strategies’ a valid part of R&D for tax purposes.
Criteria 6 – Are your costs eligible for R&D Tax Credits?
To claim R&D Tax Credits, you need to have spent money on eligible
There are eight kinds of costs that are eligible for R&D Tax Relief.
- Direct Staff costs
- Externally provided workers
- Subcontracted R&D
- R&D consumables
- Clinical trial volunteers
- Contributions to independent research
You can only claim R&D Tax Credits if you have invested in these eligible costs.
How much relief you can claim on each cost depends on whether you’re claiming SME R&D Tax Relief or the Research and Development Expenditure Credit. You find out more about the two schemes here.
There are also a few costs that HMRC explicitly says you cannot claim for. They are:
- The costs of any and all commercial activities required to get a product to market
- Producing and distributing products and services
- Creating a patent or using a third party’s patent
- Capital expenditure (in certain circumstances)
You can read more about which costs you can claim for, how much you can claim, and ineligible costs, in our dedicated blog.
Criteria 7 – Was your development work overseen by a competent professional?
Your work must have been overseen by a competent professional.
A Competent Professional is someone who is knowledgeable about the scientific and technological principles involved; is aware of the state of the art in the field; and has a successful track record in the relevant areas.
Did the person overseeing your development work have significant expertise in the field in which the R&D took place? If so, they will probably qualify as a competent professional.
You can read more about competition professionals, and how to identify them in your business, here.
Find out if you’re eligible for R&D Tax Credits
If you meet all seven criteria listed above, then there’s a good chance your company is eligible for R&D Tax Credits. And that you’ll be able to make a lucrative claim for government funding.
If you want to be 100% certain that you qualify – which is always a good idea when dealing with HMRC – the best thing to do is speak to an R&D Tax Credits specialist like GrantTree.
Our team of tax and technical experts know R&D Tax Relief inside and out. They can tell you not only whether you qualify for the scheme, but also how much you can expect to earn if you file a claim.
All for free, and without commitment.
Just get in touch, and we’ll get you on your way to claiming R&D Tax Credits.