When does an R&D project start and end?

One question we get asked surprisingly often is how does HMRC define the start and end of an R&D project for R&D tax relief purposes. No wonder – HMRC’s definition is much narrower than you’d expect, and doesn’t line up with when a company would define the kick-off or end of an R&D project.

The HMRC guidance states that ‘R&D begins when work to resolve the scientific or technological uncertainty starts, and ends when that uncertainty is resolved or work to resolve it ceases.’ But what does this mean to a claimant, and how does it line up with the normal phases of a project?

The phases

In general, an R&D project goes through several phases – planning, research, development, testing, marketing and product release. Of course, there are often several cycles of research, development and testing before the project succeeds (or fails!). Different companies will call these phases different things, but in general the shape of an R&D project is pretty consistent.

How do these phases line up with HMRC’s guidance? Well, you can immediately discount the marketing and release phase – marketing spending is specifically excluded from the scheme. The R&D by HMRC’s definition must therefore end before this stage.

From here it’s a little more complicated, and hangs on the definition of a ‘technical uncertainty’. According to the guidance, ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’

This means that it’s not enough for the technical staff not to know how they’ll achieve the project outcome, but also whether it is even possible using established knowledge and techniques.

The start of the project

Looking again at the project phases, it can therefore be seen that the start of a project can be a little fuzzy! It’s easiest to think of it as when the professionals working on the project have dismissed all of the standard ways of doing things and are embarking on work that will generate new knowledge. This might be during the planning phase, if the technical uncertainties are known from the beginning, or it might be during the research or development phases, once all of the established ways have been tested and shown not to work.

The end of the project

Once you understand what your technical uncertainties are, the end of a project becomes a lot clearer. The project ends when these technical uncertainties have been resolved, so at the point where, for example, a working prototype has been produced or the process shown to produce the required outcome. You can’t claim for spending to, for example, make the prototype look nice once you’ve worked out how to make it work.

The last thing to bear in mind is that the end isn’t always the end! A company might develop something and resolve all of their technical uncertainties, only to find that the final product doesn’t quite meet specification. If the redesign or rework throw up more technical uncertainties, the R&D starts again!