My project was unsuccessful or abandoned. Can I still claim Research and Development Tax relief?
When looking at a Research and Development tax claim (R&D), there are 4 main questions that we seek to answer, based on the criteria HMRC will use to evaluate the claim:
- Has there been an attempted overall advance in a field of science or technology?
- What was the uncertainty encountered?
- How were efforts made to overcome this uncertainty?
- Why was the advance not readily deducible by a competent professional working in the field?
Failure has an impact on the answers to each of these queries, considered below.
Has there been an attempted overall advance in a field of science or technology?
This query looks at the project goal, and whether it represented an overall advance in the field of science or technology. In order to show this, it is helpful to understand where the industry baseline was at the start of the project.
This means:
- The goal cannot simply be the application of existing technology to a new sector, unless significant adaptations are required which represent an advance in themselves.
- Social science advances will not qualify, even if they satisfy the other criteria.
- If the end goal has been achieved by a competitor, but information as to how this has been done is proprietary in nature, this criterion can still be satisfied.
Failure does not prohibit this criterion being met, and it would be expected that when attempting an overall advance, failure is always a possibility.
What was the uncertainty encountered?
This question considers the difficulties in achieving this overall advance. If the advance was readily deducible from the outset, and the outcome was not uncertain at any stage, the project doesn’t qualify for R+D tax relief. The uncertainty must be scientific or technological (rather than commercial) in nature.
An uncertainty means that a competent professional cannot determine at the outset whether the project will succeed. This is aided significantly where it is possible to include details of unsuccessful attempts, or failed projects in the report. If the project did not succeed, then as long as the company is an expert in the field, it is highly likely that the uncertainty being claimed was truly uncertain. This can also strengthen the case for other projects included in the claim, even if these were successful.
How were efforts made to overcome this uncertainty?
This query is in many ways the most important; and frequently the most overlooked. This query centres on the process of attempting to make the advance, by resolving technological or scientific uncertainty. This could involve several things, for example:
- Experimentation, or trial and error
- Simulations
- Designs and calculations
It is likely that this process will be iterative to some degree, including small failures, adjustments, and re-trialing.
Why was the advance not readily deducible to a competent professional working in the field?
The main purpose of this query is to ensure that there were real technological and scientific uncertainties which required resolution to enable the advance to be made. This is in contrast to the situation where the advance is simply uncertain to a company as a result of the company’s lack of experience in the field, for example a baker diversifying for the first time into car manufacture. This can be shown through evidence of failures, by the company or competitors. Alternatively, this can be shown by industry experts working on the project explaining the uncertainties.
So, in conclusion, failure of a project does not prevent tax relief being claimed?
Yes, this is the case. Failure for scientific or technological reasons will benefit the claim substantially, through increased ease of evidencing uncertainties. Failure for other reasons, for example commerciality, will also not prevent the claim being made.
