By far the most significant determining factor concerning the eligibility of an R&D tax relief claim is the consideration of whether the work conducted constitutes an advance.
This is the primary thing that needs to be established when helping your client determine whether they are conducting eligible R&D work.
There is a great deal of nuance in this topic, given that different parts of the HM Revenue and Customs (HMRC) guidance can seem to indicate different notions.
However, an advance is something that impacts the field of science and technology as a whole and not just a slight modification to the individual company or sector.
What do HMRC consider an advance?
Fundamentally, HMRC consider something to be an advance if it is either something that has physical consequences or is an increase in overall knowledge.
This may not necessarily involve creating something entirely original.
HMRC notes that “improvements arising from the adaptation of knowledge or capability from another field of science or technology are appreciable improvements if they would generally be acknowledged by a competent professional working in the field as a genuine and non-trivial improvement.”
If your client takes inspiration from a process in a different field of science and technology and finds a way to bring it into their own, then this could count as an advance.
The key criterion is whether the work counts as an appreciable improvement in the client’s field of science and technology.
An appreciable improvement is defined by HMRC as:
- Creating a process, material, device, product, or service that increases overall knowledge or capability in a field of science or technology.
- Appreciably improving an existing process, material, device, product, or service
- Using science or technology to copy the effect of a current process, material, device, product, or service in a new or improved way
Improving existing processes may centre on saving costs, reducing waste, or making something more sustainable.
The advance should be a genuine, non-trivial improvement that results in more than a minor or routine upgrade.
It is worth highlighting how HMRC states that “a process, material, device, product, or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade.”
This makes it essential to establish the level of awareness your client has for the overall field of science and technology in which they work, rather than just what is new for their business.
Just because your client has not thought to try an innovation before, does not mean it will be considered an advance for R&D tax relief purposes.
Everything that is developed and engineered has been refined over years of trial and error, and likely will continue to undergo similar improvements.
Depending on the field of science and technology in which your client works, the exact scope of the advances could be very different.
Some clients may be enhancing entire manufacturing processes while others might be refining the exact dimensions of a specialist piece of hardware.
So long as it benefits the field as a whole, and is a non-trivial improvement, then it would count for R&D tax relief purposes.
What advances should I look for in my client’s work?
Despite the ongoing political debate over its possibility, the move towards Net Zero is still of interest to the Government.
As such, many businesses are reforming their processes to be more environmentally sustainable.
This is true in nearly every field of science and technology where the costs of materials and energy run high, and a growing environmental consciousness from consumers paves the way to greener operations.
If your client is able to replicate the work they have been doing, but in a more environmentally sustainable way, this could constitute an advance.
This may involve swapping synthetic materials and chemicals for natural alternatives and discovering how to maintain low costs and high product quality.
Alternatively, finding ways to optimise manufacturing to reduce emissions while preserving output could constitute an advance if the process were fundamentally altered to achieve that goal.
It is the fundamental alteration of something to make it appreciably better that forms the main focus of whether something is an advance.
It is imperative to understand what the existing state of the field of science and technology was prior to starting the project and how your client’s work has led to an advance, if you wish to compile an R&D tax relief claim.
Seeking the advice of a professional R&D tax consultant is wise, as we can use our expert knowledge of HMRC’s guidance to strengthen and maximise your client’s R&D tax relief claim.
