A story hit the Australian media on last week highlighting the concerns of Treasurer, Jim Chalmers over the ability of gambling companies to access research tax credits.
Chalmers described it as “problematic” that companies such as those manufacturing betting machines were able to access credits for R&D work, despite technically qualifying.
Of course, the UK operates on a different system of R&D tax credits, but the question remains a valid one – is it legal for any sector to claim R&D tax relief?
On the surface, the answer is ‘yes’, provided the company and its work meet all other requirements – but your clients may find that it is not quite as simple as this.
We need to look in more detail at the practicalities of claiming R&D tax to reach a conclusive answer.
Is it R&D?
Although qualifying claims from any sector are allowed, there are strict guidelines as to what qualifies as R&D – and your client will need to be able to make a case for their work, whatever their sector.
These requirements include:
- Projects must make or seek an advancement in science and technology
- Projects must not be easily worked out by another professional
- Projects must contribute to the overall knowledge of the field.
The main issue many businesses face here is that they assume their project qualifies because it, for example, applies scientific or technological principles but does not achieve an eligible innovation.
To use the Australian Treasurer’s gambling example, consider a company that manufactures betting machines.
A qualifying advancement might be something like an improvement in the way that the machines are made to make them more energy-efficient, using a new technique and in a way that adds applicable knowledge to the field of technology manufacturing.
A non-qualifying project might be applying a process already developed by another company, not modifying it in any way and using it to improve only that company’s machines.
Does it relate to your trade?
The other rule that you may find clients overlook is the requirement for R&D work to relate to a company’s trade, either an existing one or one that they intend to launch as a result of their R&D work.
It is therefore less likely that businesses that do not routinely work in science and technology will have a compliant claim – but not impossible.
Take a fashion brand for example. While its daily work is unlikely to class as R&D, a new fabric or way of making garments with technology may qualify.
However, if the business chose to branch out and develop new materials in other areas, it would need to incorporate these into its trade.
Ultimately, successful, compliant claims can come from any sector, but some businesses will need to be more cautious in their approach to preparing claims.
It is important that all claims are discussed with a specialist R&D accountant service to ensure your clients are working in accordance with the latest legislation.
For further advice on preparing R&D tax claims for clients of any sector, please contact our advisory team today to discuss your needs.
