Research and Development (R&D) is an important activity for many businesses, providing a way to drive innovation and stay competitive in today's fast-paced marketplace.
In the UK, R&D is defined as a systematic investigation or experimentation carried out to acquire new knowledge or to improve existing products, processes, services, or materials. However, not all activities that businesses may think of as research and development actually qualify for tax relief purposes.
While there is a vast amount of qualifying activity which can be claimed under the R&D scheme, there are some restrictions too. Some areas of activity which do not qualify for the scheme including:
Regular or routine activities, such as minor modifications or routine testing, are not considered as research and development . This is because they do not involve the systematic investigation or experimentation needed to gain new knowledge or improve existing products or processes.
For example, a company is adapting a cleaning spray that they manufacture. There is a chemical they want to include in the formulation, so they create this chemical using an established process. This doesn’t constitute R&D, as there is no specific advance in science or technology, they are using established processes. There may be other elements of R&D in the project, but the use of an existing scientific process doesn’t qualify.
Activities aimed at gathering information on market trends, consumer behavior, or the competitive landscape are not considered R&D. While this type of research can be important for business decision-making, it does not involve the scientific or technical uncertainty required for R&D.
For example – a company has performed extensive tests into the content and page structures that most effectively drive traffic to take specific actions on their website. Although this may have created some level of technical advances, in the fields of psychology or UX – this is specifically excluded from qualifying as R&D under the tax definition.
Design and styling:
While design and styling can be important for creating innovative products or services, they are not considered R&D on their own. Only design and styling activities that involve scientific or technical uncertainty and lead to the creation of new or improved products or processes may qualify for R&D relief.
For example – a company changes the size of a product by a small amount, as it reduces costs and won’t impact performance. If this change doesn’t impact the underlying science/technology behind the product, and there is no need for re-testing/analysis – this won’t qualify as R&D.
Pure mathematic – not eligible until after 1/4/2023
For example – a company may have developed advances in pure mathematics as part of their work, but unless these are advances in representing the nature and behaviour of the physical and material universe, they won’t qualify as R&D, until policy changes on the 1/4/2023.
What else might not qualify for R&D activities?
Unsure if your R&D activity qualifies?
If you're unsure whether your activity qualifies, speak to us and we'll be able to help you understand whether your activity qualifies under the R&D scheme.
Our specialist R&D team can help in identifying all your qualifying R&D costs and turning them into a financial boost for your business.
Find out the changes announced in the spring statement including additional support for R&D intensive businesses.
Find out how how companies can meet the deadlines for R&D tax credit claims and all the key R&D tax relief changes coming into place in 2023.
Costs involved in R&D are tax deductible and there are two ways in which R&D costs can reduce a companies Corporation Tax liability. Firstly – with the usual deduction of 100% of the cost from your companies profits. In addition, the R&D Tax Credit scheme allows a further deduction of 130% of eligible R&D costs, […]