{"id":9963,"date":"2015-02-03T00:00:00","date_gmt":"2015-02-03T00:00:00","guid":{"rendered":"https:\/\/www.processindustryforum.com\/uncategorised\/navigating-rd-tax-relief-maze"},"modified":"2015-02-03T00:00:00","modified_gmt":"2015-02-03T00:00:00","slug":"navigating-rd-tax-relief-maze","status":"publish","type":"post","link":"https:\/\/www.processindustryforum.com\/research-development\/navigating-rd-tax-relief-maze","title":{"rendered":"Navigating the R&D tax relief maze"},"content":{"rendered":"

So you’ve joined the growing number of engineering businesses keen to make the most of the Government\u2019s generous R&D tax relief scheme. Congratulations! You\u2019re potentially on your way to securing thousands of pounds for your company, but there are one or two things you should know first.<\/p>\n

What you need to know when applying for R&D tax relief<\/h2>\n

HMRC\u2019s guidelines for what constitutes R&D are certainly extensive, but they\u2019re not always clear! It can take a fair bit of time, not to mention head-scratching, to pick your way through the terminology and understand exactly how HMRC defines R&D<\/strong>.
\n\"R&D<\/p>\n

Technological uncertainty vs technological unknown<\/h3>\n

One thing HMRC is clear about is that companies must be trying to achieve their goals by resolving \u2018technological uncertainties\u2019 within specific projects. So what\u2019s meant by \u2018uncertainty\u2019? Well, in the eyes of HMRC, there is a vast difference between technical uncertainties and technical unknowns. Technical unknowns on their own don\u2019t count as eligible R&D, which only kicks in when technical uncertainties arise. The distinction between the two essentially comes down to whether or not a problem can be readily resolved by a competent professional. If it can, then it isn\u2019t a technological uncertainty. R&D only begins when conventional knowledge has been applied and exhausted, without a resolution to the problem.<\/p>\n

Automotive R&D claim example<\/h3>\n

An automotive engineering company aims to develop an improved transmission system for use in commercial transit vans. It procures three transmission systems produced by competitors and tests each to qualify the performance. Although the performance of each transmission system is unknown, it is possible to carry out the tests using conventional methods. This data may provide engineers with a clear idea on how to develop an improved transmission system. In this case, the unknown has been resolved (ie the performance of the competitors\u2019 systems) and, as established methods were used, this doesn’t constitute R&D. However, if, once the unknowns have been resolved, it\u2019s still unclear how the engineers will develop a more efficient transmission system, then this becomes a technical uncertainty and R&D begins!<\/p>\n

R& D Claim – Trial and error<\/h3>\n

Another minefield on the fine line between eligible and ineligible R&D is trial and error! If you think of trial and error as experimentation using routine methods, then when it\u2019s used to remove unknowns that precede R&D it\u2019s ineligible, but if it\u2019s used to resolve technical uncertainties that form part of R&D then it is eligible.<\/p>\n

Engineering firm R&D claim example<\/h3>\n

If an engineering firm is using trial and error to establish the best tooling material for a given application, this wouldn\u2019t be considered eligible R&D. Why? Because the company knows that with this trial it will find the best material for its purpose. If, instead, a company uses trial and error to determine how different parameters affect fundamental material properties, and this knowledge hasn\u2019t been documented in the open domain, then this is R&D. Why? Because in the second example, trial and error is being used to generate new knowledge.<\/p>\n

R& D Claim – Process improvement<\/h3>\n

Advancements in a company\u2019s processes only qualify as eligible R&D if they\u2019re geared towards advancing science and technology, not simply increasing profits.<\/p>\n

Factory R&D claim example<\/h3>\n

If a factory installs new machines to improve production processes, but is then forced to carry out major adaptations to resolve technological uncertainties before this improvement can be seen, then this is eligible R&D. However, if process improvement is carried out purely for commercial gain \u2013 such as improving the processes using standard methods with a view to increasing production rates \u2013 then it doesn’t count as R&D.<\/p>\n

Slippery stuff, and this is just the tip of the iceberg when it comes to the many specific definitions of eligibility on HMRC\u2019s website<\/a>. No wonder companies find applying for R&D tax relief on their own quite so daunting and confusing. As the UK\u2019s leading technical R&D tax relief specialist, Jumpstart<\/a> provides a host of engineering companies with a welcome hand in securing R&D tax relief. All on a no-win, no-fee basis!<\/p>\n

Would you like to see other guest blogs from Jumpstart, click on the links below:<\/p>\n