While most R&D projects have a start date and an end date, when it comes to preparing an R&D tax credit claim, determining what those are can be challenging. HMRC’s guidelines for what stages of a project qualify for R&D tax credits are narrower than the full duration of the project.

Often, your client’s understanding of their project timeline may be quite different. For them, the project starts with the idea of the product or service and finishes with the end result (either on the shelves or in-service). However, HMRC only considers the research and development stages of the project as part of a claim.

Why is it important to note the difference between HMRC’s definition and your client’s? Firstly, the duration of an R&D project is key to knowing which costs can be included in your client’s claim.

Secondly, you’ll need to determine which accounting period(s) the qualifying R&D project falls under.

Thirdly, including R&D costs in a claim which fall outside of HMRC’s R&D definition could lead to HMRC querying or rejecting your claim.

Related: R&D tax credits explained – What are they? Is your client’s company eligible?

How to figure out your client’s R&D project timeline: the start and the end

R&D work often takes place over many years, with projects incurring varying amounts of expenditure over this time. As a result, qualifying R&D projects can be difficult to track from start to finish when putting together a claim.

‘R&D begins when work to resolve the scientific or technological uncertainty starts, and ends when that uncertainty is resolved or work to resolve it ceases’ – HMRC

What stages can you claim for?

The key stages of any research and development project are planning, market research, product research and development, testing, design, marketing, and rollout. Your client can disregard the marketing and rollout phases, as there is no technological uncertainty in these stages. But the other stages – product research and development and testing, in particular – is where there is most likely to be uncertainty that was resolved through a research and development process.

• The start of R&D: By HMRC’s definition, the R&D work starts when an uncertainty has been identified, usually during the research and development, testing and prototyping stages as mentioned above. This occurs when your client finds that established methods are unable to solve the uncertainty. This most often leads to qualifying R&D work as it creates the need for the project to venture into the realm of new and innovative ideas and work to overcome said uncertainty.
• The end of R&D: the end of a project is when the uncertainty has been resolved or the work to resolve it ceases. Point 34 of the latest guidelines from HMRC explains it in more detail: ‘R&D ends when knowledge is codified in a form usable by a competent professional working in the field, or when a prototype or pilot plant with all the functional characteristics of the final process, material, device, product or service is produced.’

This could be when a new product gets developed, or a working prototype is successfully produced. Or if your client decides not to continue with the project.

It’s important to note that if your client revisits the project at a later stage and makes revisions that try to overcome any scientific or technological uncertainty that may have arisen post-production, they may be able to include this as qualifying R&D. And so, the project starts again.

However, any further expense to refine the appearance of the solution cannot be included in a claim. This is because the aesthetics and design stage of the project does not affect the functionality of the end product, and does not qualify for R&D tax credits.

You and your client should be crystal clear on what uncertainties their projects seek to resolve. It’s important to involve the people that worked to achieve these technological advances. Having a clear understanding of what the technical uncertainties are will help not only in identifying the start and end dates of the project but also in demonstrating how the projects qualify and what costs are eligible within the R&D tax credit claim. Remember, your client will need to keep a strict paper trail of all expenses and working documents.

How far back can my client claim?

The timeframe for R&D tax credit claims is two years from the end of your client’s accounting period. HMRC, therefore, allows R&D tax credit claims to include R&D costs from any projects that fall within this period. The good news is it’s not just completed/resolved projects you can claim for, but also ongoing and even failed projects.

Related: What expenses qualify for R&D tax credits?

Ongoing projects

If a project is ongoing, it can still qualify for R&D tax credits. You do not have to wait for a project to be completed to claim from HMRC. Many R&D projects have yet to reach a conclusion (successful or not) and HMRC has accounted for this. To clarify: if, at the end of your client’s accounting period, the project is still ongoing, any eligible activity can still contribute towards a claim for work completed within that period.

For example, if a company’s accounting year ends 31st March 2022 and they have never made a claim but have been carrying out R&D projects for a number of years, the company would be able to claim for the financial years ending 31st March 2021 and 31st March 2020, before a deadline of 31st of March 2022. If they have spent £50,000 on qualifying R&D activity on ongoing projects for the past two years, their claim would be worth up to £16,500 in cashback or tax savings.

Failed projects

It’s a common misconception that your client’s projects need to be profitable to qualify for R&D tax credits or relief. 

Failed projects can also qualify for R&D tax credits. In fact, a failed project is often a good indicator that there have been challenges and the project has sought to overcome a technological or scientific uncertainty – a key signal to HMRC that R&D work is taking place. The starting point of these projects remains the same, however, the endpoint is identified when the uncertainty fails to be solved by the project. Failed projects often have long development and testing phases. In this instance, it is up to your client to decide when to discontinue work on the project. 

How about claims for loss-making companies?

It’s also worth noting that loss-making companies can also qualify. Often, companies that have yet to make a profit either have ongoing R&D, or haven’t started selling their product yet. Again, this is often a sign that there are continued efforts to resolve uncertainties. 

Claiming R&D tax credits on failed projects or for loss-making companies can benefit your client. The funding made available through an R&D tax claim can provide a cash injection can boost cashflow.

Read more about how to claim R&D tax credit on a failed project in our featured blog.

Automate your client’s claim with made.simplr

With made.simplr’s R&D tax credit software, you will be able to identify the timeline of the projects your client is eligible for. Plus, by using our online platform, you can input, manage and track their R&D claims as they progress.

Let made.simplr do all the heavy lifting for your client’s R&D tax credit claim. 

Book a demo today!