Identifying in-eligible clients in Professional, Scientific and Technical companies
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Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. Previously, we’ve tackled the sectors where you might be less likely to find eligibility, but now we want to tackle the top five (according to HMRC’s stats):
- Information and Communication (Software)
- Professional, Scientific and Technical
- Wholesale & Retail trade and repairs
Having recently covered software, construction, and manufacturing, this time we’re looking at companies with Professional, Scientific and Technical SIC codes. In common with the rest of the top five, the level of eligible R&D to be found in these types of companies is misunderstood and can be overestimated.
In fact, a lot of companies under this classification (it’s too broad to be a sector!) will land more towards the ineligible end of the spectrum. The difficulty here is that the classification is so broad as to be almost meaningless from an R&D point of view; covering, as it does, everything from accountancy and management consultancy, through advertising and market research, all the way to scientific research and development. So, in a change from our usual programming, we’ll address this one sub-classification at a time!
Legal and accounting activities
Starting with the least eligible sector within this classification, let’s look at legal and accounting activities. In our experience, you’re very unlikely to find any eligible work in these types of companies—the day-to-day work done in these types of companies is non-technical, highly regulated and doesn’t require innovation or product development to be successful. It’s also important to carefully assess any software projects carried out by legal or accounting firms; although they’re heavy consumers of specialist software, any project focussed on the installation and configuration of software won’t be eligible. Even where the company has commissioned bespoke software, this is unlikely to be eligible unless the developers have had to advance software science in some way.
Activities of head offices and management consultancy
Everything that we’ve said about legal and accounting companies could be applied to companies in the activities of head offices and management consultancy sub-classification. These will, in the main, be non-technical companies and have no need to advance science or technology in the course of their business. The only reason that they rank higher than legal and accounting firms in the might-be-eligible scale is the ambiguity of the term ‘activities of head offices’.
Of course, there’s a good chance that some of the head offices in this classification will be of a technical nature and carry out eligible R&D either themselves, or through their subsidiaries. The biggest risk in preparing claims for these types of companies is misattributing the costs between the head office and any subsidiaries. It’s important to be sure that you prepare the claim based on which company carried out the work, and which P&L account the costs were routed through.
Advertising and market research
Moving ever so slightly up the eligibility scale, we have advertising and market research. Again, in general, you won’t find much in the way of eligibility in these types of companies—although the work that they do can be more technical, it usually uses established techniques and technologies to achieve its aims.
The slight exception to this is digital agencies. We’ve written about where you might find eligibility in these types of companies before, but it’s important to remember that things like the design and management of PPC campaigns, the management of social media channels and advertising, and even Search Engine Optimisation (SEO) are highly unlikely to be eligible.
Architectural and engineering activities and technical testing
Architecture is also a subject we’ve written about in detail before—in short, there’s a fairly good chance that you’ll find eligible work! As for engineering and technical testing, the story is very similar—these types of companies are pretty likely to qualify for R&D tax relief.
Within engineering, the likelihood of finding eligible work depends to some degree on the type of engineering organisation and the type of engineering that they are carrying out. For example, a robotics engineering company is highly likely to be eligible, whereas a small civil engineering company specialising in standard supermarket builds is far less likely to be doing eligible projects. However, in general, engineering companies are always worth speaking to about their projects.
‘Technical testing companies” covers two types of companies—those that develop tests, and those that simply administer them. The former will almost certainly have some eligibility, and the latter will almost certainly not!
Scientific research and development
And finally, the last sector in this classification—scientific research and development. These companies will almost certainly qualify for R&D tax relief, without any ifs, buts, or ‘it depends’!
A word of warning though—when making claims for scientific research companies, be very careful to check what grants they have had and what projects they funded, and also on whose behalf they did the research. Both of these issues make these claims more difficult to put together accurately, and in certain circumstances can disqualify the company from claiming—for example where all of the work has been done under contract to SMEs.