R&D tax relief is designed to support the furthering of overall knowledge within a specific sector, as opposed to incentivising purely commercial activities.
As a result, R&D for tax purposes stop when the challenge or uncertainty has been addressed or overcome.
What does this look like? For many projects, it is the prototyping stage.
Claiming for prototypes
Prototyping costs are generally eligible for R&D tax reliefs because prototyping is considered to be part of overcoming an uncertainty, particularly if that uncertainty relates to the use or functionality of a product or material.
R&D tax regulations recognise that prototyping typically requires multiple steps, as qualifying expenditure explicitly covers R&D until the completion of a ‘working prototype’.
For your client, this means that they can claim for relevant costs such as staffing and consumables for all prototyping until they are deemed to reach the end of their R&D project, even if they need to make multiple unsuccessful prototypes.
Processes and services
The end of eligible R&D can be more difficult to identify when a process or service is being developed, as opposed to a product.
However, the same principle applies, so costs are eligible for R&D tax credits until the point at which the process has been developed to the point of functionality, for example.
Your client should document all costs and testing relating to these projects in detail, as they may be asked to account for the costs included in the claim.
R&D tax and production costs
R&D tax legislation does not permit claims to be made for commercial costs, meaning expenditure relating to the manufacturing and delivery of products is not eligible.
We understand the difficulties associated with certain costs and their eligibility for R&D tax relief. To support your practice, we can advise you on the finer points of R&D tax relief to ensure that your clients’ claims are compliant and successful.
If you need guidance on preparing R&D tax relief claims for your clients, please contact our team today to discuss your requirements.