R&D Tax 101: What’s A Scientific and Technological Uncertainty?

R&D tax credits can significantly reduce your company's tax bill or even give you a cash boost, but many businesses miss out due to misunderstandings about what qualifies. Research and development are not exclusive to laboratories and multi-million-pound conglomerates; many SMEs and start-ups are at the forefront of innovation in the UK.

Knowing the basic qualification criteria can help you identify eligible projects early on. A qualifying scientific or technological uncertainty is one of the main requirements for a project. But what does this mean in practice?

What is a Scientific or Technological Uncertainty?

The legislation requires a qualifying project to have an eligible advance in science or technology which is achieved through overcoming scientific or technological uncertainty.

HMRC defines an uncertainty in the following text:

“Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.”

Companies need to identify if a challenge they’re facing is just that – a challenge – or if there is genuinely no solution to the problem in the public domain.

It is expected that companies will have investigated the state of the art and all standard approaches before beginning any R&D. This is usually explained in the ‘baseline’ section – more on this in our blog here.

HMRC expects to see uncertainty in situations where companies are turning a scientifically feasible principle into a cost-effective, reproducible process, product or service.

The solution should not be “readily deducible”, i.e., the company’s competent professionals must experiment to find the solution to their uncertainty.

What about system uncertainty?

HMRC also has a provision for “system uncertainty”, which results from (as you may have guessed) the complexity of a system, rather than its components.

Some projects may find that, although the components are already established, the best method for combining or integrating them is not. This can often be found in software projects but is not limited to this field. System uncertainty may arise out of unpredictable results from components, or external constraints on the integration, like cost or size.

For example, a company working on an electrical engineering project may be aware of the components required but cannot easily identify how to integrate them. The components are fixed and do not require modification but, due to other constraints (e.g., space within the framework), the company could not find an obvious way to bring them together to achieve a specific result.

What Doesn’t Qualify as Uncertainty?

Beware of misidentifying a standard challenge as an uncertainty. Companies will often find themselves up against difficulties, but not every instance is eligible for R&D tax relief. If the problem is easily resolved, either through researching others’ solutions or even if you developed your own solution but found the answer without much trouble, then it won’t qualify.

A common mistake is confusing business challenges for scientific or technological uncertainties. If your uncertainty isn’t about the feasibility of the science or technology, then it’s not qualifying.

For example, not having enough staff to deliver a project in a certain timeframe or being uncertain of market demand are not valid uncertainties. However, the feasibility of delivering a project at a lower cost is an eligible uncertainty, as you are seeking to overcome the limitations of the field.

HMRC also emphasises that routine problem-solving, aesthetic challenges or standard upgrades are not eligible.

Challenges, problems or difficulties may form part of a scientific or technological uncertainty; however, an uncertainty forms the foundation of an R&D project and requires significant experimentation to overcome.

Real-World Examples of Uncertainty

Uncertainty will show up in a large variety of fields and projects. HMRC’s definitions are intentionally broad to ensure that they apply to any field of science or technology.

Some areas where uncertainty can be found could include:

• Software Development: Developing new algorithms or platforms where existing technology falls short.
• Manufacturing & Engineering: Creating new materials or processes to meet unique specifications.
• Pharmaceuticals & Life Sciences: Trials to discover new drug formulations where outcomes are unpredictable.

Below, we’ve provided some examples of how uncertainty might arise, but there are infinite areas where companies can find qualifying projects. If you’re not sure if your project is eligible, don’t hesitate to get in touch with the experts.

New method for managing performance at oil refinery

Company A is an oil refinery which manufactures products dependent on the characteristics of the crude oil input. It switches oil sources which negatively impacts the performance of a particular catalyst. The standard methods for managing performance (e.g., alternative catalysts or regenerative processes) do not resolve the issue.

The engineering team is uncertain if it will be able to develop a new method to maintain the catalyst’s performance. The new method is not readily deducible from existing know-how or experience. Therefore, the work to develop a new method is seeking to overcome uncertainty.

Component development within larger furniture project

Company B is a furniture manufacturer who is working on a project developing a new piece of collapsible furniture. The design is one which the company is familiar with. However, the specific piece’s specifications limit the space, costs and materials that can be used. Therefore, one fitting in a single part of the design is unusable and there is no alternative part that the company knows of following its research.

The company is uncertain if it will be able to develop a fitting that can meet the design brief, due to the constraints discussed.

However, in this example, only the work on developing a suitable fitting can be included in an R&D tax credit claim; the rest of the wider furniture project is routine design and manufacture.

New packaging tool for production plant

Company C is a production plant. It begins a project to operate with less waste and improved output. The engineering team seeks to develop new technical parameters for the production line, including a new packaging tool which uses less material.

The engineering team, being experts in the field, recognise that there are no existing tools which can achieve this and, having researched industry standards and competitor technologies, cannot identify a way to achieve this. Therefore, this is a qualifying uncertainty.

Tips from the Experts

It’s important to identify scientific or technological uncertainty as early as possible to make sure your eligible projects are captured and properly recorded. Early identification makes writing your R&D tax credit claim easier down the line, as all the information should have already been captured.

Similarly, it can be easy to miss projects when preparing a claim. The deadline to make a claim is two years after the end of the accounting period; this can test the memory of the team as they try to recall the work they did years ago. Marking uncertainties as soon as they happen can help the team keep records on this work and build more robust claims.

Making sure all team members, from finance to technical, are aware of the qualifying criteria will make record-keeping easier. Collaboration and communication on the meaning of uncertainties, as well as time spent on them (through timesheets and project codes), will make sure no eligible project or cost is missed.

We recommend reviewing your internal record keeping; you should have detailed records of hypotheses, trials, failures, and technical roadblocks. Documenting experimentation and other key indicators of R&D will make claiming a breeze.

Is your project qualifying?

Still not sure if you have a valid scientific or technological uncertainty? Get in touch with our team for a free eligibility call. We have over 20 years of experience making claims and have seen uncertainties in nearly every field imaginable.

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.