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What is R&D for Tax Purposes?

“It’s essential we put stimulus in place for long term research and development, sooner rather than later. While it’s important we cut the deficit, we also need to think about building long-term sources of wealth.”
Sir James Dyson, 2012.

The Government listened carefully and analysed Dyson’s 2010 report on R&D in the UK. As such, the R&D tax schemes have continued to see significant positive enhancements as part of an ongoing consultative process.

 

What is a ‘technological advance’ for R&D-tax-purposes?

To be R&D-for-tax-purposes essentially, a project must meet the following conditions and caveats…

R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.

Caveat

Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.


What is an advance in science or technology?


An advance is where the project sets out to deliver a set of stated goals. All of the technical aspects of the project need to be considered:

  • Is it faster, more scalable, more secure, more robust, have more integrations than the norm?
  • What makes it different from the normal vanilla system?
  • Can you express those differences in terms that a lay person could understand?
    e.g. 10% faster than normal processes.
  • Did you need to develop new technical knowledge in terms of understanding how to achieve a particular functionality, design, integration or specification?
  • Was the solution “readily deducible”?

The advance does not need to have been achieved, the company merely has to try.


What is scientific and technological uncertainty?


Basically, it’s all of the technical challenges and hurdles that get in the way of the project succeeding easily. The most obvious one would be system uncertainty. This is where all of the individual elements of the new system must be considered in aggregate, resolving the uncertainty and the risk of connecting together all of the individual elements of the development only to find that the system fails.

Caveat

The R&D tax relief regime is a self certifying regime. Your own technical staff, you, are the competent professionals and if the solution wasn’t obvious to you then it is probably R&D-for-tax-purposes.