Identifying Eligible Clients in the Professional, Science & Technical Sector | Q&A
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A big thank you to all who came to our “Identifying Eligible R&D Clients in the Professional, Science & Technical Sector” webinar earlier this month!
We have a public preview live here on our YouTube channel. Uncut versions of our R&D Eligibility series are available only to WhisperClaims users only; if you’re a subscriber and wish to watch this webinar in full, get in touch!
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Now, without further ado…
1) My client is planning an R&D project, and is hoping to get a 70% intervention grant for the proof of concept. Can the client claim under the RDEC scheme?
Assuming that the work that they are doing meets HMRC’s eligibility criteria, then yes! How much of the project spending has to be routed through the RDEC scheme will depend on the type of grant; if it’s a de minimis grant, then only the amount of the grant would have to be claimed through RDEC, whereas if it’s State Aid then the whole project cost would have to be claimed through RDEC.
2) Does the project have to succeed for the expenses to qualify?
No! CIRD81900 paragraph 38 states very clearly that failed projects that sought to make an advance in science or technology can be claimed for, as long as they meet the rest of the eligibility criteria.
3) Does ownership of IP affect the entity that can claim?
Not any more, no. CIRD81550 lays out the rules around IP that existed when the scheme was first launched, but these rules have since been abolished. However, we’d recommend looking into this in subcontracted R&D scenarios because it’s a good indicator of who owns the R&D and therefore which of the parties in the contract can claim for the R&D.
4) Is overseas R&D subcontracting now disallowable for R&D claims? What year will HMRC change the claims process for subcontractors that are not UK based? With a fluid political and Brexit situation at the moment how set in stone are the changes expected to come into effect next year?
All good questions! We’re written about this in detail before, but in short the changes are expected to become law in April 2023. Up until this point overseas subcontractor costs remain allowable. HMRC are still gathering responses to the announced changes, so there is a small chance that they will be changed or even scrapped, but from what we’ve seen this is unlikely.
5) Is there any R&D in care homes?
In short, no. This is something else that we’ve written about at length before, but in short there’s almost no chance that a care home will be doing any work that meets the criteria. Projects focussed on recipe or menu development, care plans or home layout wouldn’t be eligible, and even software projects are highly unlikely to be advancing software science and therefore would be ineligible.
6) I have a client who is building a machine to manufacture a food item with the help of an engineer. Would they qualify to make a claim?
Based on the information given here, I can’t see any reason why not! Assuming that the company is required to advance engineering in order to build a successful machine, and they are working closely enough with the engineer to know that eligible R&D is taking place, they should be able to claim.
7) What about the feasibility of improvements/upgrades of the current technological solutions in the fields of Artificial Intelligence for any field (for example care settings)?
Projects that seek to improve or upgrade current technology are allowable—CIRD81900 paragraph 9c states the projects that seek to ‘make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes’ would be eligible for tax relief. The key thing to consider is whether the improvements require advances to be made in software science or artificial intelligence, and not just simple changes to functionality.
8) Could you explain the cap you referenced?
The government introduced a cap on the total R&D tax credits claimable by a company in April 2021. You can read more details here, but essentially the amount of payable tax credit that an SME can claim is capped to £20,000 plus 300% of the company’s total PAYE and NIC liability for the period. So if a company has paid out, for example, £50,000 in PAYE/NICs in the claim year, the maximum tax credit it can claim is £170,000. This equates to a surrenderable loss of over £1m, and an eligible spend of £500-£900k.
9) Can integrating various software using APIs qualify if it isn’t easy, and various testing has to be completed to achieve desired outcome?
Integration of software using APIs is definitely moving out of the realm of eligibility and into the area of readily deducible tasks—these days, APIs tend to be well-developed and documented, and don’t require any eligible work to be carried out to be successful. However, there are still pockets of eligibility within the area of integration, for example where APIs are non-existent or documentation doesn’t exist, and extensive testing and experimentation is required to enable successful integration of software systems.
10) Would you say that architectural master planning counts as Science and Technology?
Possibly. It really comes down to how much technical testing and experimentation is needed to develop the plan. If the plan can be written using existing knowledge then it’s unlikely to have any eligibility. However, if a plan required, for example, a company to develop new ways of supporting legacy walls in a new development, and this required them to advance engineering science, then there could be a claim.
11) Would you say there is R&D in the catering sector?
This is another ‘almost certainly not’. Again, we’ve addressed this in detail before, but in short the day-to-day business of a catering company doesn’t require the development of technical solutions, and any innovation they might undertake, such as new recipes or cookery methods, are unlikely to advance science or technology.
12) Would writing a research paper which proposed an alternative outcome to a scientific situation count as an R&D project?
This is definitely an ‘it depends’! In general, purely writing speculatively about science and potential advances wouldn’t meet the criteria for R&D tax relief; they haven’t advanced science or overcome any technical uncertainties in the process of writing a paper. However, if they carry out experiments to back up their theories, for example, then there’s a good chance they’d be able to claim.