When does work on an R&D project end?

Ernest Hemingway is quoted as saying that a person dies two deaths – once when they perish and once more when they are forgotten.

R&D projects also have multiple different ‘endings’ that need to be considered when compiling an R&D tax relief claim.

To avoid running into confusion with HMRC, it is worth understanding how and when an R&D project can come to an end.

Does an R&D project end when the work is finished?

The most straightforward end for an R&D project is when the work itself is completed.

This will mean that an innovative business is left with a product or process that represents a genuine advance in science or technology.

At this point, the work conducted to make this project possible can be neatly represented in an R&D tax relief claim and the costs handled appropriately.

This is working on the assumption that the project started and ended within the same accounting period and can neatly be wrapped up in a single R&D tax relief claim.

This is where the different endings begin to manifest, as work is unlikely to be so neatly defined.

For many innovative companies, the work conducted on an R&D project will spill across multiple accounting periods and will need to be handled carefully.

What happens when an R&D project does not end in the same period it began?

There are two options available to innovative businesses when an R&D project spans multiple years.

The first is to simply wait for the project to reach its conclusion and then make an R&D tax relief claim covering the full project.

This is only possible due to R&D tax relief claims having the capacity to cover two accounting periods in one claim.

However, costs must still be correctly assigned to the period in which they were incurred.

The technical narrative can freely describe the full project with little consideration of the change in accounting period.

Where a project seems set to continue into a third accounting period, it still needs to be captured before that happens.

This will involve providing an artificial end to the R&D project for the purposes of an R&D tax relief claim.

In this instance, the technical narrative can highlight that the work will continue as a way of alerting HMRC to the potential for a follow-up R&D tax relief claim in the future.

When does a failed or abandoned project end?

Given the nature of seeking advances in the face of great uncertainty, it is natural that not every R&D project will be successful.

If an innovative business has hit a wall and can no longer continue, then the end of the project is the point at which work ceases.

This is also true if other factors mean that an R&D project will not be continuing during an accounting period, even if the plan is to pick it back up in the future.

It is important to record when exactly R&D work ceases, as it would be illegitimate to include costs after this point in the R&D tax relief claim.

Some costs, like staff salaries, are likely to be a continued expense, so need to be separated out accordingly.

Are there other ends to an R&D project?

Some may view the completion and submission of an R&D tax relief claim as the official end of the project, as that is when the paperwork for it is finished.

Given the prevalence of enquiries, some may view a point where an enquiry is no longer possible or has been successfully countered as the final end of a project.

Whichever ending of an R&D project is the ‘real’ one, we will support the handling of all legitimate R&D tax relief claims.

As R&D tax consultants, our work does not end, as we will be ready to support accountants and innovative businesses with their next R&D tax relief claims from the point at which the last one is submitted.

For unending R&D tax relief support, speak to our team today.

Adam Bointon