Understanding what projects qualify for R&D tax credits

Qualifying R&D activity

With research and development tax credits providing the opportunity for businesses to recoup some of the expenditure spent on qualifying activity, it’s essential to understand exactly which projects meet the necessary criteria. After all, a successful claim is about demonstrating that you have spent money on projects that look to make an advancement in science or technology, but the terminology is so broad there is always a level of uncertainty.

Providers of R&D tax solutions and accountancy services are specially trained to successfully manage and submit applications for R&D tax credits, but having a head start and knowing precisely what activity you’re engaging in will prove effective in making a claim.

Qualifying criteria

As stated above, R&D activity is all about seeking an advancement. According to the HMRC guidelines, the definition for qualifying activity is being able to demonstrate that any work:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • overcame this uncertainty
  • could not easily be worked out by a professional in the field

You’ll notice that this is a somewhat vague definition, leaving a number of questions open to businesses of all sizes. Does this mean we need to be wearing lab coats and goggles? Can we only claim if we’ve invented the new Google?

Of course, the reality of the situation couldn’t be more different. While market sectors such as medicine and pharmaceuticals are obvious candidates for R&D tax credits, there are plenty of other industries that fulfil this criteria. One which we’ve touched on above relates to software and technology development; with many of the world’s most forward-thinking organisations working within the technology field, it is axiomatic that these companies are able to benefit.

Similarly, other businesses have the opportunity to work in developing their market, such as food manufacturers looking to improve food preservation techniques; manufacturers refining production techniques; or architects seeking more efficient materials for construction. There is a host of opportunities for all companies that are investing in R&D to reclaim some of the associated costs – with claims often reaching hundreds of thousands of pounds.

Qualifying costs

Once you’ve established a qualifying project, it’s essential that you maintain a record of the qualifying costs accrued during the R&D process. While it’s not possible to claim for everything, you will find that a number of expenses fall within the R&D claim criteria, including:

  • Staff salaries
  • Wages
  • Class 1 NICs
  • Pension fund contributions
  • Selected subcontractor costs (i.e. those where R&D work has been undertaken by a charity, higher education institute, scientific research organisation, health service body, or an individual or partnership of individuals)
  • Consumable items such as materials and utilities

Making a claim requires that you present all the relevant documentation that demonstrates that the R&D work meets the necessary criteria. If you’re unsure about the process of how to make a claim, you should always work with experienced and specialist R&D tax credit experts. After all, the difference between a failed claim and a successful one could be worth thousands to your business.