What is meant by ancillary activities essential to the undertaking of R&D?

If you have ever found yourself deep in the web of R&D tax relief guidance, it is possible you will have come across some of the strange terms HMRC utilise.

One that can cause much confusion is what precisely is meant by ancillary activities essential to the undertaking of R&D.

As this can be an area where costs are reclaimed, it was worth understanding what precisely is meant by this.

What do HMRC consider an ancillary activity essential to the undertaking of R&D?

When calculating the costs that can be included in an R&D tax relief claim, they are categorised as direct or indirect activity.

Direct activity is the work that is actively done to tackle the scientific or technological uncertainty and determine s the success or failure of the project itself.

This work is supplemented by indirect activity, which is the work that makes R&D possible in the first place.

Indirect activity includes a host of things, but one that may catch your eye for its vagueness alone is ancillary activities.

While there can be a range of things considered ancillary activities, HMRC explicitly mentions “taking on and paying staff, leasing laboratories and maintaining research and development equipment, including computers used for R&D purposes.”

In essence, these activities are the bits of busy work that are necessary for enabling R&D work to take place.

How do you know whether an activity can be included in an R&D tax relief claim?

The haziness of ancillary activities can lead to some legitimate costs being missed or ineligible costs being added to an R&D tax relief claim.

To get a sense of whether the activity might be eligible to be included in an R&D tax relief claim, it is worth questioning whether the cost would have been incurred if no R&D took place.

For instance, would a piece of equipment need to be leased or maintained if it were not part of a project?

Generally, if you are utilising something for commercial and R&D reasons, then it would not be eligible for inclusion in an R&D tax relief claim, as you would be spending the same money on it regardless.

However, where additional costs are generated by something playing a role in R&D, even if it is not wholly used for that purpose, it may be possible to include the R&D related costs.

This would be applicable for hiring security staff, wherein part of their role involves protecting the area where R&D takes place.

Ultimately, the safest bet when determining what should be included or excluded is to seek the advice of an R&D tax consultant.

We have cultivated our knowledge over many years and can identify which ancillary activities are worth representing in an R&D tax relief claim.

Should any eligible costs be queried by HMRC, we can provide a robust enquiry defence service to preserve the value of your R&D tax relief claim.

To avoid complications when calculating costs, speak to our team today.

Adam Bointon