Last year, the House of Lords opened an enquiry into the changes with regards to R&D tax relief in the draft Finance Bill 2022–23 and undertook a consultation as part of this process.

Their report is now available here – Lords Committee publishes report on research and development tax relief and expenditure credit – Committees – UK Parliament

One of the suggestions we put forward made it into the report, in relation to HMRC providing examples of not just qualifying R&D projects, but also those which don’t qualify:

“The need for examples was referenced by a number of witnesses, with Research and Development Consulting Limited commenting that it was as helpful to have case studies that showed what did not qualify as it was to know what did”

The reasoning behind this was that rogue R&D agents are very good at convincing non-qualifying companies that they should be making a claim.  If there were clear examples of non-qualifying projects available, straight from the horse’s mouth, then it might make some companies approached by rogue agents think twice about how honest the advice they are being given is, which will hopefully lead to the submission of less fraudulent claims.

As it will take HMRC a while to read the report and then hopefully publish some suitable examples, below are some real projects which we have discounted recently as they don’t meet the criteria for R&D tax relief.

Company A is primarily involved in haulage and has around 100 trucks and drivers on the road every day visiting thousands of different customer sites, each with different rules and regulations in effect, often only available on a noticeboard somewhere on-site.

The company decided to engage a software developer to create a system which would store all the various rules and then drivers could look these up on a mobile phone prior to arriving on-site.  The system would also include other information such as where to report, mapping via Google Maps to provide drivers with accurate directions to the correct part of site and a diary system which staff in the office could automatically populate, giving the drivers their itinerary for the week which previously was sent via email on Sunday night.

Unfortunately, this project would not meet the criteria for R&D tax relief – it can be broken down into 3 distinct areas, none of which would qualify:

• A system to store information which someone can look up on a mobile phone.
• Using Google Maps to include route mapping functionality.
• In-built diary system.

For a project to qualify for R&D tax relief, it must be seeking to create an advance within a field of science or technology via the resolution of scientific or technological uncertainty.

Whilst possibly never used for this exact purpose before, the above types of functionalities exist and are widespread.  A software developer would know that they can create a system with the above features and therefore doing so would not overcome any uncertainty or create any advance within the field of computer science.

Company B is involved in the renovation of listed buildings.  For one of their projects, they needed a paint which could be applied to concrete and which would match existing timber within the building.  They found no off-the-shelf paint would be suitable and so engaged a specialist paint manufacturing company to mix their desired colour from a large catalogue of available colours.

As an existing solution was used, there was no uncertainty nor advance within chemical engineering made here.

Bob set up Company C in 2018 with the goal of making a new range of curry sauces which wouldn’t contain any of the preservatives commonly found in existing products and which could be ordered online.  Bob had worked for 20 years as a chef in the Army and so was certain he could produce a great tasting sauce with no preservatives.

However, Bob realised that without preservatives his products wouldn’t stay fresh for very long which was a problem as his customers wouldn’t receive their sauce for a few days after ordering.  Bob looked online and found that certain spices had natural preservative qualities and so he experimented with adding some of those to his sauces until he found the right mix of spices to keep his sauces fresh for twice as long as the original recipe.

Some would say that this project meets the above mentioned uncertainty and advance criteria as Bob was uncertain whether he could meet his goals in terms of shelf-life and he created a new product so therefore an advance in the food industry.

These people would be wrong.  In terms of food science, there is already a lot of information available as to how to create a longer lasting product without using preservatives.  Bob would have likely known this had he been a ‘competent professional’ in food science.  Even so, he managed to easily access the information online.

For a project to qualify for R&D tax relief, it must be seeking to advance a field of science or technology via the resolution of scientific or technological uncertainty.  Therefore, to assess whether a project qualifies we must focus on:

• What field of science or technology are we dealing with? It is not enough to create something which advances an industry e.g. the software above which is very useful to the haulage industry but creates no advanced in any qualifying field of science or technology.
• Is there any scientific or technological uncertainty to be overcome? If a competent professional in that field can readily deduce how to fulfil the brief then there is no uncertainty.

• What advance in a field of science or technology would be created should this project be successful? It is important to note here that the project does not have to succeed.

These are not the only criteria that must be met for a company to make a claim but without these, there cannot be a claim.  Unfortunately, these criteria are misunderstood by many who allege to be experts in compiling R&D claims so we are looking forward to any guidance HMRC can publish which will make the rules around R&D tax relief much clearer.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 14 Feb 2023