When most people think of R&D tax relief, they picture gleaming prototypes of brand-new products.
However, there is more to innovation than developing something entirely new.
Improving existing processes can also qualify if they meet the criteria for scientific or technological uncertainty.
As different sectors seek to optimise the way that work is conducted, there could be a much broader scope for R&D tax reliefs to be claimed.
How do process improvements count as R&D?
Not every innovative business is going to be churning out fresh new inventions designed to revolutionise the way we live, but that does not mean they are not innovating.
When a company sets out to make a process significantly better, whether that’s faster cycle times, higher throughput, improved quality, or reduced environmental impact, they often face the same kind of uncertainty that comes with product development.
The crucial test is whether the improvement could be readily deduced by a competent professional.
If not, and if a systematic approach was required to overcome those uncertainties, the work can be eligible.
Different sectors are likely to encounter different system uncertainties and strive for innovation in unique ways.
In food production, yield issues frequently arise from complex interactions between heat profiles, equipment speed and product handling.
Where resolving those issues requires experimentation rather than straightforward adjustments, the activity can meet the merged scheme’s threshold.
While adjusting the recipe itself is unlikely to count as R&D, things like changing packaging or processing to preserve shelf-life could constitute R&D if they require significant innovation.
Conducting work in a more environmentally efficient way is also an area that will likely require innovative processes.
It is no doubt easier, and often cheaper, to use less sustainable practices and processes, so anything that can circumvent this without excessively increasing costs is worth exploring.
In precision machining, waste reduction often involves more than tweaking tool settings and can form a central part of R&D work.
When conventional industry practices cannot deliver the required combination of accuracy and material efficiency, the path forward is a sequence of planned experiments, the same way that a company may work to develop a prototype system.
When working with innovative clients, it is worth discussing the processes by which they conduct operations rather than just focusing on the end result.
Often, a novel process is required to develop a new prototype or other innovation, so these pieces of R&D can often go hand-in-hand.
What does not count as innovative process improvements?
It is important to keep in mind that anything that could be considered routine maintenance does not count as R&D.
If your client conducts an annual check of their processes and makes a few tweaks here and there, they will not be able to include this in the R&D tax relief claim.
Likewise, if they are just updating their processes to keep pace with a competitor, then this likely will not qualify either.
The only time when it could be is if the competitor’s processes are a closely guarded secret and your client still needs to innovate to achieve a comparable result.
It will be helpful if they find a different solution, but this could be hard for them to know ahead of time.
As with all R&D tax relief claims, it is vital that the innovation be something new and non-obvious to a competent professional.
As R&D tax consultants, we are on hand to help you understand whether the work your client conducts is eligible for R&D tax relief.
Don’t let your clients miss out on vital R&D tax relief funds. Speak to our team today!
