If any of your clients operate in the heady heights of the aerospace sector, there may be an assumption that they’re light years ahead in the world of R&D – but this isn’t always the case.
When advising aerospace clients on R&D tax relief, it’s important to remain on terra firma and ensure that each client’s work is assessed and evidenced before submitting a claim.
The challenges of aerospace
The main issue of R&D tax facing the aerospace sector and accountants advising operators is the assumption that R&D is taking place.
This is clearly a generalisation, but it is one that many businesses within the sector make and which you may need to dispel.
Aerospace is certainly a cutting-edge sector, with new developments continually being made in processes, materials, sustainability and entire products and systems.
However, the assumption that aerospace developments will classify as R&D for tax purposes can lead clients down a difficult road that can result in unnecessary enquiries by HMRC.
The question of novelty
There are two main criteria that your client’s work needs to meet before qualifying for R&D tax relief:
- Making an advance or addressing an uncertainty in science and technology
- Being genuinely new and adding to the overall sum of knowledge in the field.
R&D projects in aerospace are unlikely to face challenges on the first point, although it’s important to assess each piece of work individually.
However, the second point often raises difficulties for even the most scientifically or technologically advanced project.
As a rapidly developing field, aerospace developments may well involve building on new technologies and existing knowledge, which may not qualify as eligible work.
In aerospace and related sectors, it can be difficult to identify true R&D as the majority of work involves some degree of scientific or technological knowledge, which can make claims from this sector more challenging to prepare without expert support.
Qualifying work must not only apply existing knowledge or technology to a new situation – it must add to the overall knowledge base in the field in which that sector sits.
Accessible knowledge
This means that it cannot only add to the firm’s knowledge, unless the existing knowledge developed by the project is a trade secret elsewhere and not freely available.
To qualify as R&D, aerospace development work must achieve or create either:
- A process, material, product or device that enhances knowledge or capability in a sector
- An appreciable improvement in an existing process, material, product or device
This must be achieved by application of scientific or technological principles.
The project may also qualify for R&D if the improvement is attempted, but not realised.
If you are advising an aerospace client, make sure to sit down with them and review each project that is to be included in a claim before preparing it in detail.
This will ensure that no preconceptions about work within the sector find their way into the claim and reduce the risk of an enquiry or investigation into your client’s submission.
For expert advice and support R&D tax for aerospace clients, please contact our advisory team today to discuss your needs.
