For an R&D tax relief claim to be valid, it is dependent on establishing that the work conducted seeks to address a scientific or technological uncertainty.
Your client might be the expert in their field of science and technology, but the HM Revenue and Customs (HMRC) officer determining the validity of their R&D tax relief claim is unlikely to be.
HMRC need to understand that the R&D work conducted was not easy or routine.
The best way to do this is by explaining the scientific or technological uncertainty that needed resolving in the first place.
What counts as a scientific or technological uncertainty in R&D tax relief?
By its very nature, a scientific or technological uncertainty is something that was not known when the project began.
It may not be known whether something is scientifically possible or technologically feasible, which is likely the easiest type of uncertainty to prove.
It may also be an uncertainty if it is unclear how to achieve something even when it has been determined to be possible.
The most common cause of uncertainty is turning something from a possibility into a reality in a way that is cost-effective, reliable, and reproducible.
One of the most famous examples of this is with Leonardo da Vinci’s designs for a flying machine.
He determined that it was scientifically possible to make a machine that could fly, but the uncertainty around making it a reality persisted until the success of the Wright Brothers in 1903.
For R&D tax relief purposes, the Wright Brothers would have been able to make a claim as, despite the concept being proven centuries before, they still had to use trial and error to create something that worked.
From there, further uncertainty existed surrounding the scalability of the design.
It was not a simple task to make an aeroplane large enough to carry multiple people, let alone to the scale we have them today.
Each step of the way involved innovation and development to resolve ongoing scientific and technological uncertainty.
How to prove scientific and technological uncertainty
Unfortunately for da Vinci, HMRC requires significant work to be done on a project to be classified as R&D for tax relief.
A concerted effort must be made to resolve the uncertainty through a clearly defined method or plan with realistic attempts to make a breakthrough.
This prevents companies from imagining a range of outlandish problems and claiming R&D tax relief on their imagined solutions.
As your client’s competent professional may have limited involvement in compiling the R&D tax relief claim, it is beneficial to encourage them to document the methodology of their work and the issues that arose during it.
Charting the failures of the project is arguably more important than charting its ultimate success, as HMRC needs to understand that the project did prove challenging.
On the whole, your client’s work must contribute to the overall field of science or technology and not simply something novel for them or their sector.
As an R&D tax relief consultant, we are here to provide expert guidance in maximising your client’s R&D tax relief claim while ensuring it stays compliant.
We can advise you on putting the claim together and also improving record-keeping to aid in future claims.
