Page 6 - Should you be claiming R&D tax credits

WHAT ARE R&D TAX CREDITS?
Who is eligible?
This is where HMRC’s terminology can create confusion and probably why so many companies failed to recognise that they were eligible for tax relief, even to this day.
This is not a tax relief scheme to reward hard work or for activities that create more of what is already available. In the words of HMRC it was created to benefit companies striving to achieve technical and scientific advances through projects that extend the current industry baseline, and where uncertainty in the outcome exists and the methods used to achieve success are not readily deducible. See what we mean? It’s not particularly clear what’s eligible and what’s not.
Whilst this terminology is not clear to the vast majority the important thing to understand about the scheme is that it is based on interpretation. With so many different industries and different activities it is impossible to have an all-encompassing legislation, so accurate claims rely on intelligent and knowledgeable interpretation against the letter and spirit of the scheme.
ONE IMPORTANT THING TO REMEMBER:
„ Tax relief applies to all eligible project costs, whether they were successful or not. The government understands that true innovation can come from many failures so the costs incurred in eligible project failures can qualify for tax relief.
Here are the basics about eligibility.
Let’s start with a technical or scientific advance that advances the industry baseline.
A simple way to understand this is to look at the intended outcome of a project, i.e. ‘what is the advance that will be achieved?’. The diagram below shows some example results that could be eligible, but it’s important that you can quantify the level of advance e.g. 20% faster.
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Example results of innovation
TECHNICAL OR SCIENTIFIC ADVANCEMENT
smaller faster cheaper
lighter
greener
stronger safer reliability
simpler