Thank you to everyone who joined our ‘Get Started: Identifying Eligible Clients’ webinar today to discuss innovation within borderline cases and unusual sectors. We had over 70 WhisperClaims users and members of the industry tuning in and some fantastic questions posed!
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For those who joined us on the 20th August, here’s the answers to your questions.
Q1. Would clothing manufacturers be eligible to claim? This specific company takes previous items of clothing from popular brands, then analyses them to find a more affordable factory or process to create an identical piece of clothing?
In that specific example, the identification of more affordable processes and factories would not be eligible – it’s more of a logistical advance than a technical advance. That’s not to say that clothing manufacturers can’t be eligible – we’ve seen companies, for example, developing advanced RFI tags and tracking software to increase efficiency of clothing manufacture and delivery. In addition, the development of new manufacturing techniques, for example using laser joining in place of stitching, could have some eligibility, as long as the company are seeking to make a technological or scientific advance.
Q2. What is the turnover threshold for a company to claim?
There’s no minimum turnover threshold for a company to claim R&D tax relief. Many start-ups, in fact, make their first claim before they start trading!
There is an upper turnover threshold to be able to claim under the SME scheme. If a company has a turnover over more than €100 million and balance sheet assets of more than €86 million has to claim through the RDEC scheme, no matter how many staff they have.
Q3. What about breweries and distilleries, especially the smaller independent micro-breweries?
There can be a fair amount of eligible R&D in breweries and distilleries. The key things to look for are that they are producing their products in new and technologically advanced ways, or have developed entirely new, technologically advanced ways of brewing or distilling. Projects that tend not to have much eligibility are the more recipe/new product development-type projects, where the advance is more commercial than technical.
Q4. I am thinking of approaching a biomass company that produces energy from household rubbish. Are they likely to have eligibility?
The case of biomass energy generation is an interesting one. Ten to fifteen years ago, this was really cutting edge, but these days the science of how to do this is fairly well established. This means that if your client is using off-the-shelf machinery and standard processes, they probably couldn’t have a claim. However, if, for example, they are working on producing energy from different types or classes of household waste and are having to advance the underlying science or technology to achieve this, then they could have a claim.
Q5. My client has developed some farming machinery which I know would have R&D. However, the commissioning of these systems takes a lot of planning and trial and error – would this be eligible?
Generally, the installation and commissioning of new machinery doesn’t entail any eligible R&D. HMRC’s take is that once the technological challenges have been resolved, the R&D ends. Subsequent work to install the machinery therefore wouldn’t be eligible, unless the installation failed for technical reasons and required the resolution of further technical uncertainties.
Q6. My client installs wind turbines. To do this, each plot needs to be researched and planned out for effectiveness and efficiency, using a surveyor and other professional services. Would this be eligible?
Almost certainly not. This is a case where the project has unknowns rather than uncertainties – the company doesn’t know all the details of the plot, but they know how to find out, and they don’t need to make any advances in science or technology to get there.
Q7. I have a client who has developed a new way to clean car gearboxes whilst reconditioning them…would they be eligible?
It’s difficult to give a definite answer to this one without knowing more details! HMRC would not view the development of a new process as eligible, so if they took an off-the-shelf cleaning product and found a better way to use it, there wouldn’t be a claim. However, if they had to develop a new cleaning fluid, for example, or process the gearbox in a way that it wasn’t intended to be used, then they might have a claim.
Q8. When looking at what the technical challenges were and how they were resolved how much detail do you need to go into? In some sectors there will be a lot of “trial and error”, experiments etc, e.g. the food sector – what detail do you need to go into?
In terms of talking to your client and assessing their eligibility, it’s best to go into a fair amount of detail, so that you can be sure that the client’s projects are definitely eligible. In terms of how much information to provide to HMRC, it’s always best to give them just enough information to make an informed assessment. So, in the example above, you wouldn’t need to exhaustively detail every single trial carried out, but it is good to let HMRC know what the uncertainties were, that trials were carried out and what they tested, and the outcome of the work.
Q9. I’m currently discussing potential claims with events companies who put together bespoke menus, creating dishes and drinks specifically, would these be eligible?
Absolutely not, I’m afraid. There’s no advance in science or technology in the creation of recipes or the putting together of menus and drinks, so they wouldn’t have an eligible claim.
Q10. I have a client who is in construction and trying to claim for a scaffolding project due to challenge of space and noise. Would that be eligible?
Again, it depends! It sounds more of a logistical challenge in trying to erect scaffolding in tight spaces and more quietly. If that’s the case, they wouldn’t have a claim. However, if they have to do work and make advances in the area of, for example, mechanical engineering to produce a scaffolding system that works in tight spaces and is significantly quieter to erect, then they might have a claim.
Q11. How about professional services regarding new ways of applying knowledge to business growth?
In general, little eligible work is done in by the professional services sector. In the example here, applying knowledge to help businesses grow would be seen as social science rather than the physical sciences, and as such would not be eligible for R&D tax relief.
Q12. I have a lubricants manufacturer client, who has engaged a telecomms and IT provider to come together and to integrate a new communications system with their existing customer payment service to improve delivery of service to EU’s and then integration with CRM so that records are better. Sounds good?
In situations like this, we’d expect the lubricants manufacturer to have an excellent understanding of the functional requirements of the system that they’re trying to build. (By ‘functional requirements’, we mean the features of the software, its defined inputs and deliverables, and how it supports its users.) However, we wouldn’t expect them to be experts in IT/telecomms, especially since they’re contracting in that expertise.
To assess eligibility, we’d be trying to assess what specifically is the advance, and what field does it lie within? A general observation we’d make is that when companies who are experts in one sector are trying to claim for an advance in another (such as IT/comms/software), the claim is much more open to challenge than if they were claiming for an advance in lubrication technology (and coordinating the activities of subcontractors in order to make that advance).While it depends on the specifics of the case, I’d suspect that this company’s claim might not stand up to a detailed enquiry.
Q13. There were numerous questions relating to the situation in which a bakery company subcontracts the development of a new IT system to a specialist subcontractor. Rather than say ’Who is eligible?’, let’s look at two different scenarios; one negative, one positive.
Scenario 1 – The bakery pulls together a specification of a system to automate its workflows and make communication easier between its various personnel. There is nothing particular challenging about that from a software engineering perspective; after all, web-based, database systems have been commonplace for a while. Despite the fact that the system’s functionality is specifically designed for the bakery, there’s no R&D (as defined by HMRC).
Scenario 2 – The bakery wants some software to control some machinery that can place cherries on the top of products with the precision of a human (sounds easy, but isn’t!). This needs fine motor control, perhaps some machine learning, and a lot of image recognition and processing. The requirement for R&D is obvious, by virtue of the fact that the system required is so far beyond what’s available. This situation, in which the requirement for R&D is clear at the outset, is likely to be accepted by HMRC as subcontracted R&D. The bakery in this case would be claiming for the subcontractor’s costs.
In all cases, whether the company or its subcontractor should claim typically comes down to the specifics of: What has the subcontractor been asked to do? Was the need for R&D obvious at the outset? In which area of technology is the advance being made? Who employs the competent professionals in that field? Which company is taking the technical risk? In short, the facts are rarely cut and dried, and judgement must be used to ascertain on which side the eligibility lies.