If your client wishes to submit a claim for R&D tax relief, then you know the project must seek an advance in the fields of science or technology – but what does this mean?
It’s likely that you and your clients have an individual idea of what science and technology mean as concepts, these ideas are also likely to be far narrower than the definition of the terms for R&D tax purposes.
The definitions employed by HM Revenue & Customs (HMRC) are purposefully broad, allowing all projects that sit within those boundaries to benefit from tax relief – an indicator of the underlying purpose of the relief scheme of recognising and incentivising R&D wherever it occurs.
Science – The theory behind the practice
HMRC defines science for the purposes of R&D tax as ‘the systematic study of the nature and behaviour of the physical and material universe’.
This moves far beyond the traditional realm of laboratories and colourful beakers that many of us likely picture when ‘science’ comes to mind – although these integral parts are often mobilised behind the scenes.
At its core, the R&D definition of science demonstrates an enlightened approach to research, naming no specific sectors and instead prioritising the work itself, wherever it seeks an advancement.
For example, ‘the physical and material universe’ may cover more obvious projects such as the development of medicines and chemicals. However, it may also encompass:
- Clothing materials
- Feed for pets and animals
- The makeup of cosmetics
One major change to this side of the coin that your clients need to know is that, for accounting periods from 1 April 2023, mathematical advances themselves are classed as science for R&D tax purposes.
Technology – The application of science
On the flipside, technology encompasses the definition of science and applies it to practicalities for the ‘practical application of scientific principles or knowledge.’
This is where many firms and the businesses they advise come into conflict with HMRC, because most pieces of development work with some scientific principles. The very flexibility of ‘science’ as a term creates difficulty when applied to ‘technology’.
It can be hard to determine whether a piece of work truly meets the definition of technology, particularly in rapidly developing sectors.
AI is an interesting example which we have covered recently in-depth. As a new and exciting industry, many businesses within the sector think they are carrying out R&D and are therefore eligible for R&D tax relief – but they may just be using an existing technology in a new way.
This is the core of technology for R&D purposes. It must be genuinely novel, not just finding new ways of using existing products.
This is a good approach to take when nailing down the basics of a client’s project before deciding on R&D tax relief eligibility.
Is it new? Does it address or tackle an uncertainty? Does it employ high-level scientific concepts and build up from there?
This is just one of the ways that we can help you to accurately advise clients on claiming R&D tax relief for qualifying projects – which all starts by identifying how it meets the definition of science and technology.
For advice on levelling up your R&D tax practice with specialist support, contact the randd uk team today.
