Eligibility

Your company may qualify if it is subject to UK Corporation Tax and undertakes projects that seek an advance in science or technology by addressing scientific or technological uncertainties that could not readily be resolved by a competent professional in the field. Qualifying R&D can arise in developing new products, processes, materials or software, as well as making appreciable improvements to existing ones. The project does not need to succeed to qualify.

Eligibility depends on the nature of the work undertaken, rather than simply whether your business describes itself as innovative or carries out product development.

For tax purposes, R&D is more specific than everyday innovation. HMRC looks for a project seeking an advance in a field of science or technology and involving scientific or technological uncertainty. This means that a competent professional could not readily determine whether something was possible, or how to achieve it, using existing knowledge and available information.

The advance must relate to the wider field, not simply be something that is new to your company. Activities directly contributing to resolving the uncertainty, together with certain qualifying indirect activities, can potentially form part of the R&D.

Software development can qualify for R&D tax relief where a project seeks an advance in technology and involves genuine technological uncertainty. Simply developing a new website, application, platform or implementing existing technology is not enough in itself.

Potentially qualifying projects can include work where competent software professionals cannot readily determine how to achieve the required performance, functionality, scalability, security or integration using existing knowledge and techniques. The key question is not "Is the software new?", but "What technological advance was being sought, what uncertainty prevented it being readily achieved, and how did the development team attempt to resolve that uncertainty?"

Yes. A project does not have to succeed to qualify for R&D tax relief. A failed or abandoned project can actually provide strong evidence that genuine scientific or technological uncertainty existed.

For example, a business might develop and test several approaches without achieving the required performance, or conclude that the intended technological solution is not currently feasible. Qualifying R&D generally begins when work starts to resolve the scientific or technological uncertainty and ends when that uncertainty is resolved or the work to resolve it stops.

The important consideration is therefore the nature of the R&D work undertaken, rather than whether the project ultimately delivered a successful commercial outcome.

The rules for contracted-out R&D changed for accounting periods beginning on or after 1 April 2024. Broadly, the company that contracts out R&D may be able to claim the qualifying contracted-out costs where the statutory conditions are satisfied.

A key question is whether it is reasonable to conclude, from the contract and the surrounding circumstances, that the customer intended or contemplated that this type of R&D would be undertaken to meet the contractual obligations. The customer does not necessarily need to carry out the R&D itself.

A contractor may be able to claim for R&D that it undertakes on its own initiative, but generally cannot claim for R&D that it carries out as part of delivering R&D contracted out to it by a customer. The contract, commercial reality, project records and the parties’ intentions should all be considered.