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A scientific or technological advance is critical for making an R&D tax relief claim. But what is an advance?
Since August 2023, companies claiming R&D tax credits have been required to submit an Additional Information Form (AIF), which details why the projects being claimed are qualifying.
One of the main criteria for a qualifying project is to seek to advance the field of science or technology. But what does this mean?
Your project should seek a scientific or technological advance in the wider field, not just your company’s knowledge and capabilities. Usually, this means creating or improving a process, material, device, product, or service.
The legislation states:
“An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.”
Within HMRC’s guidance, there is also a provision for “appreciable improvements”. This means that improvements to products, processes and services (either your own or developed by others) can be claimed so long as there is clear evidence that new knowledge or capabilities were developed. Basically, you don’t need to reinvent the wheel; you can claim for projects based on existing knowledge or capabilities if you make a genuine improvement to them.
Companies should aim to quantify their advances. For example, making a process five times faster demonstrates an advance in the technologies used. Without the quantification, HMRC may view the vagueness as an indication of incremental improvement instead of a genuine advance.
It’s important that your advance is in the “overall knowledge or capability in a field”. This is where a robust scientific or technological baseline comes in handy. Proving that you established the state of the art before beginning your R&D project will make it clear that you sought genuine improvement.
You should research competitor products and information in the public domain, and complete literature reviews where possible, to show that the improvement you’re seeking is not available.
Your project’s “competent professional” should be able to identify and explain the advances sought.
It’s recommended that the qualifying criteria are explained clearly to those working directly on the R&D project (software developers, engineers, scientists, testers) so advances can be correctly identified early.
Some experts in a particular field may disagree on genuine advances or uncertainties. However, where the opinion of a competent professional is clearly communicated with a strong foundation in the field, HMRC should accept the position.
It is crucial to differentiate between an advance in the commercial field and an advance in science or technology; often, claimants may believe that their project qualifies since it is the first product in the market. However, this is not eligible if the technologies and scientific principles used are standard, readily deducible or routine, with only slight adaptations to the use case.
For example:
Company A is developing a new app to connect small-scale, organic farmers to vendors. No other app exists for this use case. However, the app is developed using standard methods that are widely used by app developers. Therefore, there is no eligible R&D in this project.
This highlights the importance of discussing the project with the technical lead developers and establishing a technological baseline. Company A should ask the lead developer if there were any new techniques developed, or if any of the work done was unknown to the team. Company A should also investigate the standard approaches to developing apps, particularly those designed to connect people, to see if there was anything missing.
It’s important to distinguish between an advance and an adaptation. When it comes to appreciable improvements to products, services, or processes, the advance needs to be “genuine and non-trivial.” Routine improvements or adaptations cannot be claimed.
For example:
Company B develops warm and breathable clothing for hiking. It seeks to design a new, warmer style by adding a second layer of fabric to the torso panel. This is not a valid advance, even though it improves the product, as the improvement is only incrementally better than the previous version and uses the same existing technologies to achieve this.
Routine adaptations of existing products or processes to meet a company's needs are not eligible advances. The company must consider whether the underlying science or technology has been improved.
R&D projects which were not fully achieved can still be eligible for R&D tax credits. If you were aiming to make an advance and completed some R&D work to this end, this can still be included, even if the project was ultimately abandoned.
These kinds of projects usually demonstrate clearly that the project was trying to overcome a genuine, unsurmountable uncertainty.
HMRC’s guidance specifically provides for this case: “Even if the advance in science or technology sought by a project is not achieved or not fully realised, R&D still takes place”.
Sometimes, R&D projects seek to achieve a solution already made, but it’s unclear how. For example, a competitor may have already developed a solution, but their knowledge is not in the public domain (e.g., as a trade secret) and is not readily deducible.
In these instances, a company can still claim for its work so long as it demonstrates that the knowledge needed to achieve the results was not in the public domain.
For example:
Company C is developing a portable, small speaker that can reach 100 decibels. The company is aware of competitor products that can achieve this similar size products. However, the methods used by competitors to achieve this are not available to Company C and the standard components on the market cannot achieve this. Therefore, the company’s efforts to achieve this advance are considered R&D.
HMRC states as much: “If a particular advance in science or technology has already been made or attempted but details are not readily available (for example, if it is a trade secret), work to achieve such an advance can still be an advance in science or technology.”
Company D is developing a new machine-learning model to automate a manual analysis process. The existing methods are insufficient for the complexity of the data, so the company needs to develop a new machine-learning model for data analysis.
Its technological advance in terms of knowledge and capability may look something like this:
Company D seeks to advance the IT field by developing a new machine-learning model for data analysis that can handle the complexity of the data. This improves unsupervised learning capability, especially in analysing non-standard, complex datasets.
Company E, a pharmaceutical company, is developing a drug and has found that existing compounds only mitigate symptoms at the expense of significant adverse effects.
Its advance may look something like this:
Company E sought to develop a new formulation for ABC drugs with the same or better efficacy results without the adverse effects demonstrated in the existing formulation. This improved the field of science by establishing how to safely reduce the side effects of ingredients A, B, and C by at least 50% without affecting their potency.
At Myriad, we’ve been making claims for over 20 years. With a 99.9% success rate, we’re happy to answer any questions you may have.
In fact, we’re so confident in our claims, we have a zero-risk guarantee.
Our promise to you is simple: we stand firmly behind our advice. If a claim submitted by us is challenged, we'll defend it free of charge. If it is rejected, we won't charge you any fees. We'll cover any HMRC penalties and even compensate you for your time.
Get in touch with the experts at Myriad to ensure your project is qualifying.
A scientific or technological advance is critical for making an R&D tax relief claim. But what is an advance?
Understanding HMRC’s R&D tax claim rules, this guide defines a "competent professional," key criteria, and how to ensure compliance.
This facility has been designed to make it easy for customers, or their agents, to disclose inaccuracies in R&D claims.
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