What is meant by a feasibility study in R&D?

In order to make the most of R&D tax relief claims, it is important to understand the full scope of what can be considered eligible for inclusion.

The costs associated with a feasibility study are an example of a qualifying indirect activity and so are permitted for consideration in an R&D tax relief claim.

However, to make the most of it, it is important to understand what is meant by a feasibility study.

What counts as a feasibility study for R&D?

R&D projects are centred on tackling a technological or scientific uncertainty that cannot be readily deducible by a competent professional.

While this means that there has to be some degree of experimentation in the project itself in order to qualify, HMRC are not expecting innovative businesses to embark on something without conducting due diligence.

It may be clear in hindsight that some innovations are doomed to fail, like the parachute coat that famously killed its inventor when he leapt from the Eiffel Tower, it still may be worth scoping out the feasibility of success.

All innovation is born from naysayers not believing that something can be achieved, only for the brave and the bold to prove them wrong.

However, Franz Reichelt, the man who tested his own parachute coat, probably would have benefited from discerning the feasibility of the project before diving in.

Some R&D will require a commitment of time, energy and resources that cannot be comfortably recouped through R&D tax reliefs alone and require a commercial success to make it viable.

As such, companies are permitted to conduct a feasibility study to discern the chances of success and failure, as well as the likelihood of requiring specific materials and resources.

How can feasibility studies be represented in R&D tax relief claims?

A feasibility study in and of itself is not likely to qualify for an R&D tax relief claim and will need to be paired with the project that it laid the groundwork for.

As such, the dates in which everything was conducted must be accounted for to ensure that the feasibility study does not fall out of the scope of the claim.

Only costs incurred during the scope of the R&D tax relief claim can be considered eligible, so a feasibility study conducted many years ago cannot then be folded into the costs of a project.

At maximum, an R&D tax relief claim can cover the previous two accounting periods, provided that work was done and costs incurred during this time.

If a feasibility study is conducted during the relevant period, then it is important to apportion the costs in the same fashion as other qualifying indirect activities.

This will not form the main portion of the costs, but can provide a slight boost to the overall financial considerations of the R&D tax relief.

It is also important to document the necessity of the feasibility study and its findings so that these can be worked into the technical narrative.

Evidence should be collated and retained where possible in order to build a better defence should the costs of the feasibility study be challenged during an enquiry.

As R&D tax consultants, we work to help innovative businesses and clients understand how to include all legitimate aspects of R&D in an R&D tax relief claim.

Rather than jumping blindly into a claim and finding yourself struggling against an HMRC enquiry, we can support the creation and submission of legitimate R&D tax relief claims and will defend them from enquiries.

Speak to our team to become confident in handling the full scope of qualifying expenses in an R&D tax relief claim.

Jo Edwards