The cash benefits range from £8.80 per £100 for large companies, and up to £33 per £100 for small firms – an opportunity not to be missed if you work for an engineering business.
However, we often hear objections from the engineering community, such as: “We don’t do R&D” or “We don’t wear lab coats” and “This is just our day job.” We typically find that this is because the term R&D is interpreted in the strictest sense of the word, with people assuming that true research and development only exists in the particle physics laboratory CERN or in universities.
Fortunately, the government applies a much wider definition of R&D for tax purposes than is often appreciated. The definition is not industry specific and all UK companies may be eligible if they are undertaking projects to seek improvements while facing technological issues. Even failed projects can qualify.
Qualifying criteria
To qualify for R&D incentives, a company must be undertaking projects and activities that meet the definition of R&D for tax purposes – that is to say, a project must be seeking to achieve an advance in the field of science or technology and this must be through the resolution of scientific or technological uncertainties.
The project must also relate to the company’s business – either the existing business, or a business that will be established based on the results of the R&D.
To claim, it is important to explain how a project:
• Sought an advance in science and technology. An advance is usually measured against the scientific or technological benchmark that existed when the project was initiated. This is compared against the information available in the public domain.
• Faced technological uncertainties. The knowledge on how to achieve the advance was not readily available, and could not be readily deduced, at the start of the work, by you or the engineering team.
• Undertook work to overcome the technological uncertainties. What work was done to resolve the uncertainty so that the required advance could be achieved? This can be a simple description of the successes and failures you had during the project.
Your project may be seeking to research or develop a new product, process, material, device or service, or improve on an existing one. Alternatively, it may simply advance knowledge that benefits you on future projects or feeds into the publicly available knowledge base.
To qualify, your company must be carrying out R&D work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems.
Some examples of industrial sectors that do eligible qualifying R&D projects include aerospace, nuclear, oil and gas, software, design and manufacture, bio-energy, food, and life and health sciences.
Examples of R&D activities that are likely to qualify include:
• Research or new product development capability.
• Prototyping activities before new products are commercialised.
• Developing alternative material combinations to meet a particular purpose or specification.
• Developing manufacturing processes or plant production system design and optimisation.
• The use of advanced modelling software to develop and test virtual mock-up designs.
• Developing and implementing new software algorithms.
Government statistics show that there has been a 20% increase in the total value of support on R&D incentives over 2015-16 – with R&D support now reaching £2.9bn. This represents more than 25,000 claimant companies.
If you believe that there is potential for your business to claim R&D incentives, we encourage you to discuss this with your local finance team.
HM Revenue and Customs is actively encouraging companies to claim R&D incentives. So don’t let the thought of making a claim put you off, and remember that to participate there is no minimum level of qualifying R&D expenditure required.
Content published by Professional Engineering does not necessarily represent the views of the Institution of Mechanical Engineers.