Which activities count as R&D?
In order to understand if your business is eligible, you need to consider if any of your activities from the past financial year could be considered as R&D under HMRC’s definitions.
HMRC applies the following two criteria to determine eligibility. The activity must be:
- Seeking to create an advance in the field of science or technology.
- Overcoming scientific or technological uncertainty in order to achieve this.
This could sound like the incentive is only available to academic institutions and scientific research organisations, but that isn’t at all the case. HMRC have left the definition deliberately broad to ensure that all forms of R&D are taken into account. We’ve worked on claims for food makers, boutique jewellers and space-exploration equipment manufacturers (about whom we wrote a case study).
The R&D credit is most commonly claimed by companies in these sectors: software development, manufacturing, engineering, construction and pharmaceuticals. However, if you’re not in those sectors that doesn’t mean you aren’t able to claim. Claims come in from all sectors of the economy – and you might find that one of your side projects has qualifying costs while your main business activity does not. If you’re planning to make a claim for a software development project then we recommend reading our guide beforehand.
Importantly, the success or failure of the R&D project has no bearing whether you can claim – it’s about the pursuit not the outcome!
While many companies will claim for the development of new products, they may miss the R&D that goes into creating new production processes. You can also claim for upgrading or modifying existing products, services or processes.
Which activities don't count as R&D?
If the outcome you were seeking was solvable using off-the-shelf solutions then it’s unlikely that your project would qualify. For example, if you solved your scaling challenges by installing a new database management software then that would unlikely qualify for R&D. However, if none of the available solutions was suitable for your needs and the team built a novel databases solution in-house then that would likely qualify.
Additionally, HMRC doesn’t typically accept claims where the outcome has a purely aesthetic or cosmetic value. For example, if you spent money on a new WordPress website to display your products then that likely wouldn’t qualify. However, if you developed a complex shopper personalisation engine that matched products with shoppers individually, then that could qualify.
As you can see there’s quite a lot of complexity as to what counts as R&D, so if you think you might have a qualifying project then it’s best to get in touch with one of our team. We provide all eligibility assessments free of charge.
Software Development R&D Tax Credit Claims
Key insights into claiming R&D tax credits for software development projects.
RDEC Scheme Guide
The complete guide to compiling and submitting an RDEC claim. Includes an explanation of differences between the two schemes.
Government Funding Guide
A breakdown of the different types of government funding available to innovative businesses in the UK. Includes Coronavirus response funding.
Clarifying the Impact of CBILS on R&D Tax Credits
How the government's Coronavirus loan scheme affects your ability to claim.
Which costs qualify for R&D?
A breakdown of the types of costs that can be included in your claim.
EmpowerRD Covid-19 response
How we're helping businesses with their cash flow during the downturn.
Which scheme should I apply to?
Understand how your business's financial profile affects which scheme you need to apply to
How much can I claim?
Read how different accounting positions can affect how much you're able to claim.
What evidence is required to make an R&D claim?
Learn about the different pieces of evidence required for different R&D costs.
The most common queries we hear about the R&D scheme.