R&D Tax Credit Claims and the Importance of Technological Uncertainty

The meaning of Research and Development (R&D) for Tax Purposes is defined in the Department for Business Innovation and Skills’ (BIS) guidelines as:

“a project that that seeks an advance through the resolution of scientific or technical uncertainties, not deducible to a competent professional in that field”.

Of the 52,160 R&D tax credit (SME) claims made in 2018-19, all claimants have demonstrated technological uncertainty for the projects included in their R&D tax relief claims. HMRC makes it clear that businesses must demonstrate that they are trying to resolve technological or scientific uncertainty in pursuit of their R&D goals. Understanding HMRC terminology is often challenging with many businesses finding it difficult to interpret the meaning of ‘uncertainty’.

What is Technological/Scientific Uncertainty in R&D?

A scientific or technological uncertainty exists when an expert or ‘competent professional’ on the subject cannot say whether an R&D objective is technologically possible or how it can be done.

According to BIS, a scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how it can be achieved in practice, is not readily available or readily deducible to a competent professional working in the field. Broadly, this means that for a project to qualify, it must be difficult for someone with experience in the industry to achieve in terms of the practical application of the technology.

It is important to note that the uncertainty should remain even after referring to all available evidence (industry knowledge, documentation etc). R&D only begins once conventional wisdom has been applied and exhausted without finding a solution to the project objective.

Explaining how you tried to overcome the uncertainty is important for a successful claim, as are simple descriptions of project successes and failures. In essence, you should outline that your R&D project required systematic research, testing and analysis to develop– even if the development ultimately failed.

Example of Qualifying R&D Activity

A heating company develops a new central heating system that works without battery-operated valves and is accessed and controlled by a custom software application. This R&D project would qualify as the technology did not exist previously and its feasibility was unknown based on all available evidence. Therefore, this represents an advance in technology and technology that benefits the wider sector.

Example of Non-Qualifying R&D Activity

A manufacturing business purchases a new machine to increase its throughput and makes adaptations to its production line that are readily deducible by a competent professional. This R&D project fails to qualify on 2 fronts: it hasn’t resolved technological uncertainty (the result was assured) and the improvement is carried out solely for commercial gain rather than advancing science and technology.

What is a Competent Professional in R&D?

The early identification of the competent professional is vitally important to the success of any R&D tax credit claim. This helps us to maximise the robustness and technical compliance of your submission against HMRC guidelines.

A competent professional is a person with expertise, skills, and qualifications who is knowledgeable in your relevant scientific or technological field. The competent professional has a proven track record of accumulated experience and can clearly articulate the difference between routine development work and R&D that advances the fields of science and technology.

A competent professional should demonstrate:

  • Sector-specific experience and knowledge of current scientific and technological baselines or standards in the field.
  • A strong track record of achievement.
  • Up-to-date scientific and technological knowledge in their chosen field or the field in which they operate.
  • The capacity to explain and present complicated concepts to laypeople in a concise manner.

R&D Tax Credits – Do you qualify?

Due to the complex nature of the guidelines, definitions are purposefully broad and many of our clients need assistance to determine whether their R&D projects qualify against the R&D tax credit (SME) scheme criteria. Cost Care Tax employs a team of experienced tax professionals who are on hand to advise on R&D project eligibility and to make honest recommendations, regardless of your business type or sector.

Please be aware that many R&D tax credit claims are done retrospectively. Therefore, HMRC requires you to demonstrate that the project contained elements of technological uncertainty at that time. This is an important consideration for industries associated with rapid technological advancement such as software and IT. Having prepared thousands of successful claims, our tax professionals can help you determine whether your R&D projects surpassed the technological baselines of your industry in the period you worked on the project.

Contact the Cost Care Tax team for a free tax consultation to discuss your eligibility against the R&D tax relief scheme and to find out we can help you with your claim.

Alternatively, visit our R&D Tax Credits page to learn more about the scheme, the benefits of claiming, the claims process, and what costs can be included in your R&D tax relief claim.

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What our Clients Say...

We have referred tens of clients to Cost Care Tax over the past 7/8 years and all have been impressed with the professionalism and efficiency of their team. The support in relation to R&D tax claims is unrivalled and exceptional and we highly recommend them. Thanks to Wayne, Paul, Tom, Ben and the rest of the team
Even as a small business (10 employees), we spend significant amounts on R&D projects both in time and materials. Cost Care Tax has managed our R&D Tax Credit claims for the past 7 years, and in that time we’ve found their professional approach has made the process rewarding, straightforward, and painless.
Cost Care Tax has always been there to help us understand what is claimable and what isn’t, and provide us with an easy to use document for recording R&D projects. The submission reports they write are very thorough, and once approved by us they deal directly with our accounts in submitting the claim to HMRC.
Cost Care Tax's services were recommended by a larger contractor who had dealt with Cost Care Tax for various accounting and tax purposes. Needless to say we were not disappointed and they lived up to their recommendation with a high level of professionalism and attentiveness.
As a smaller contractor we can rarely afford the time nor the internal personnel to carry out the abundance of R&D paperwork involved in tax credits. Cost Care Tax takes that pressure away and carries the burden both with complete care and within a decent time frame.

Cost Care is here to support accountants and your clients - call our team of experts today and refer your client …

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