Is this a valid R&D tax relief claim?

As R&D tax consultants, we work to understand both the intricacies of the guidance and the way in which innovation can be represented in R&D tax relief claims.

For accountants looking to help their clients with R&D, it can feel overwhelming to know where to begin.

This is why we have compiled a series of factors that should indicate whether a project is worth considering as R&D or whether it is best to avoid it.

Understanding the profession of the business and the field for R&D

While there is R&D that takes place outside of a laboratory, there are some sectors and industries that are more likely to conduct qualifying activities than others.

HMRC have a list of eligible and ineligible sectors, though it is worth noting that this applies more to the project itself rather than a business.

A business from an ineligible sector could conduct valid R&D, provided the work was undertaken in a valid sector and met the other criteria.

The sectors that are likely to generate valid R&D are:

• Manufacturing and engineering
• Software development
• Construction
• Food and beverage (typically focused on processing – not a change of ingredients)
• Aerospace, rail and automotive
• Green or carbon-neutral energy
• Sports science
• Pharmaceuticals
• Health – (not humanities, such as psychology)
• Farming – arable or pastoral

The sectors that are unlikely to include R&D are:

• Services – (accountants, solicitors, hairdressers, etc.)
• Restaurants, pubs, leisure centres and hotels
• Care homes
• Property developers
• Education and social work

Using a company’s SIC code, it should be possible to note whether they are likely to be viewed as higher risk by HMRC and determine the best course of action from there.

Competent professionals

As mentioned, work can be conducted in any sector, but it would require a competent professional from that sector to be valid.

A competent professional is someone who has the qualifications, experience or both in the field of science and technology to serve as an authority on the subject.

Only work that seeks to address problems that cannot be readily deduced by the competent professional will be valid for an R&D tax relief claim.

The project itself

There are a few things to look out for when investigating whether a project counts as R&D or just routine work.

At its core, there should be an effort to seek an advance that will progress the state of science and technology beyond what is currently known.

While a business may use patents to secure innovation, the work should be beneficial to the sector in general by showing what is actually possible.

Work that would only ever benefit a single business is more likely to be viewed as routine and would not qualify.

Projects do not need to be completed or successful to be counted in an R&D tax relief claim, but work must be conducted within the appropriate timeframe for it to be counted.

R&D tax relief claims can cover the previous two accounting periods, so anything that falls outside of this is lost forever.

Breaking down costs

The exact nature of qualifying direct and indirect expenditure can trip up many businesses and accountants, but there is a relatively simple way to get a sense of its validity.

If the cost would not have been incurred without the R&D being present, then it is likely to count.

This includes the wages for the staff involved, though only for the duration of work time spent on R&D, the cost of materials that are irreversibly damaged or destroyed through R&D and cannot be sold on and the cost of energy to fuel the R&D, among other expenses.

Getting a thorough health check

While some indications of a project’s validity as a piece of R&D can be suggested here, the only way to really know whether something is likely to be worth turning into an R&D tax relief claim is with expert support.

We conduct a detailed health check at every stage of the process, interrogating all aspects to determine whether the work undertaken will meet HMRC’s criteria.

Through this, we are able to submit valid R&D tax relief claims with confidence.

Where enquiries arise, our in-depth approach allows us to more effectively defend a claim, as the depth of our knowledge means we can address the specific concerns of HMRC.

Our goal is to assist accountants and innovative businesses in improving the quality of R&D tax relief claims, so we are happy to discuss ways to improve your approach.

Speak to our team if you want to confidently determine whether an R&D tax relief claim is likely to be valid.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.