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Learn how to establish a scientific or technological baseline for making a valid R&D tax credits claim.
When it comes to R&D tax credits, one of the critical steps in preparing a successful claim is establishing a clear scientific or technological baseline. For HMRC, a well-documented baseline is the starting point for an R&D project. This baseline not only frames the scope of work but also shows why a project was needed.
An R&D project seeks to overcome scientific or technological uncertainties and make a scientific or technological advance. Uncertainties are questions that experts in the field could not readily answer using existing knowledge. An advance is an increase in the knowledge or capabilities of a field, beyond what is known.
This is where establishing a baseline comes in. The baseline is essentially a snapshot of the current state of knowledge or technology before the R&D begins. It documents what is known, identifies limitations in current methods or technology, and sets up the challenge that the project aims to address. By clearly establishing a baseline, businesses can demonstrate to HMRC that their work goes beyond routine improvements and qualifies as R&D.
Establishing a clear baseline is essential for HMRC to confirm that a project genuinely aims to address an identified gap in current knowledge. It even forms part of the required fields in the Additional Information Form (AIF).
Having no baseline makes it hard to justify the scientific or technological uncertainties, as well as why you even began the project. Any ambiguity may raise concerns if HMRC opens a compliance check and could even lead to the rejection of claims if the project's qualifying activities are not clearly articulated.
Consider a business developing a new machine-learning model that automates a manual analysis process. Before starting the R&D project, the industry-standard tools could only automate simple analyses with limited accuracy due to the specific complexities of the data.
Here, the baseline would include details of these limitations, referencing existing methods, and explaining why current models fall short. The baseline could include industry research showing that current solutions cannot process certain types of data accurately or efficiently enough to be valid.
For example:
The company researched the state of the art in machine learning models for this type of analysis. The company conducted industry research looking at competitor products and open-source information.
The company found limitations in the existing machine learning models, as the best-practice method could not handle the complexities of the company’s data.
We would expect to see specific examples of best-practice methods and their failures, as well as cited examples of research.
By presenting this baseline in an R&D tax credit claim, the business can demonstrate that its project intends to solve a genuine technological challenge rather than just fine-tuning existing tools.
A pharmaceutical company aiming to develop a drug with fewer side effects might find that existing compounds only mitigate symptoms at the expense of significant adverse effects.
Here, the baseline would describe these existing compounds' efficacy and side-effect profiles, using clinical and academic literature to outline the known limitations.
For example:
The company investigated the efficacy and side-effect profiles of compounds X, Y and Z, testing through established clinical guidelines. The company also assessed academic literature, reviewing Journals A, B and C’s research into these compounds.
The company found that the compounds had excessively common side effects, such as swelling and lethargy and that efficacy was limited in phase III trials.
In this case, we would expect to see examples of the phase III trials and specific journal reviews.
Establishing this baseline helps justify the need for experimental research activities, which may include testing new compounds or molecular structures. It supports the project’s claim as it addresses an evident scientific uncertainty directly impacting patient health outcomes.
Establishing a baseline involves more than simply identifying the starting point of a project; it requires creating a logical and well-supported foundation that justifies the R&D work. This typically includes:
By keeping a record of the baseline with the right sources, a business can put together a solid case that fits HMRC’s rules, which helps cut down on any compliance headaches.
A well-defined, evidence-based baseline serves as the cornerstone for demonstrating a project's eligibility by clearly identifying the specific uncertainties it seeks to address and the advance it's seeking to make.
It’s important that companies get their project details clear, or risk spending valuable time and resources defending the claim at a later date.
At Myriad, we have been working on R&D tax claims for over 20 years and we know what’s a qualifying project. We also know how to explain a project to highlight its most innovative aspects. If you’re not sure if your advance is clear enough, or need some support explaining your baseline, get in touch with the team at Myriad.
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Please contact us to discuss how working with Myriad can maximise and secure R&D funding opportunities for your business.
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