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Pure maths and R&D tax relief – Is it eligible

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Author: Tom Mason

Since April 2023, mathematical advances have been considered scientific for R&D purposes, regardless of whether they pertain to understanding the physical and material universe.

These reforms to R&D tax relief mean that pure maths has since been included as an eligible activity.

What is pure maths, and how does it differ from applied maths?

Pure maths is defined as maths that explores abstract concepts, complex theories and never-before-solved problems.

It is more focused on study and research and has not yet found use or adoption outside of the maths community.

Applied maths, on the other hand, does have practical use. There is a real-world problem to solve, and it is seen in a variety of industries, such as finance, chemistry and engineering.

Why did pure maths not previously qualify for R&D relief but applied maths did?

Naturally, as applied maths is fundamentally focused on real-world problems, it applied for R&D relief as it would contribute to practical technological advancements.

The ambiguity of pure maths’ real-world application meant that there were increased risks when claiming R&D tax relief on projects whose innovation was largely mathematical, even if the intended output would have had benefit to an industry.

Why did the Government change the rulings?

The rulings changed because of instances in which pure maths research demonstrated industrial application, including some of the following:

  • Algorithmic trading and financial engineering – As algorithmic trading systems become more prevalent in trading equities and alternative assets, companies are heavily investing in improving their performance. Current R&D rules focus on physical advancements, such as reducing computational energy consumption. If new rules also consider financial KPIs like alphas generated and trading signal accuracy as eligible advancements, an increase in claims from hedge funds, investment banks, and pension funds is expected.
  • Shipping Insurance – Insurance costs are a major operational expense in shipping, leading to significant efforts to improve underwriting and risk management. Previously, complex risk management activities were excluded from R&D tax relief as they were seen as social science advances. However, the inclusion of pure mathematics as an eligible activity has reclassified actuarial science advances as eligible, resulting in more R&D tax relief claims from shipping insurance companies.
  • Automotive Insurance – Automotive insurance companies use telematic data from black-box systems to analyse driving behaviour and predict accident-related costs. Previously, these data modelling activities didn’t qualify for R&D tax relief as they didn’t involve new hardware or software. However, new legislation now recognises improved modelling accuracy as an advancement, leading to more R&D claims from the automotive insurance industry.

Sectors like finance and banking have always relied on technological innovation – with the rise of Artificial Intelligence in particular, there is an urgency to invest in R&D to stay competitive.

Are you getting the right tax relief in light of these changes?

Grasping the latest changes is crucial, as you might be missing out on valuable tax relief for your projects.

Pure mathematics is still a relatively new addition to the R&D tax credit criteria, and many businesses may be unaware of the substantial tax benefits available to them.

If one of your clients’ companies is investing in pure maths and you think they may have an eligible claim, get in touch with one of our advisors who can help support you with their R&D tax claim.