The UK is home to many skilled tradespeople, whose day-to-day work is recognised as technical in nature, complex and difficult. Work in these professions can vary considerably, depending on the job and constraints given by each client. Therefore, a job well done often requires research, planning, and testing. Glancing at HMRC’s guidelines for the R&D scheme, this type of work appears very indicative of research and development, so what’s the catch?
Regrettably, a project will not qualify for the Research & Development scheme purely on merit of it being technical, difficult, or highly bespoke.
This is because HMRC restrict the type of work eligible for R&D tax relief, to include only those which attempt an advance in a field of science or technology. Bear in mind your company doesn’t need to work in a scientific or technological field itself to attempt an advance in it. For example, a welding company is not regarded as belonging to a scientific field, though if they conducted work to determine the physical properties of a new alloy, this work would be in the scientific field of metallurgy.
As stated by HMRC, the guidelines on research and development are equally applicable across all fields. This means you don’t have to be in a white-collar industry or wear a lab coat to qualify for R&D tax relief; blue-collar industries are just as entitled to take advantage of the scheme.
What HMRC are very clear about, is that advances sought in the humanities, arts or social sciences are excluded from R&D tax relief. This is unfortunate, especially as these fields are arguably as innovative and economically important as the STEM industries. On the other hand, HMRC are rather more tolerant as to what they will consider as an advance in science or technology.
Projects that tackle scientific or technological uncertainties are recognised as attempting advances if a competent professional recognises the work being done as significant. The term ‘competent professional’ just means someone with a proven track record, who is qualified or otherwise knowledgeable in a particular field. This caveat eliminates a large amount of skilled work from HMRC’s definition of R&D.
For instance, a mechanic performing tests to determine if a modern hybrid engine would be compatible with a classic car model would be unlikely to qualify. Even though their findings are bespoke and may well represent an increase in technological capability for the field, another competent professional, such as another mechanic, could readily work out how to do the same job. So, in this case, their advance would not qualify for R&D tax relief.
Considering this, much of the work done by skilled tradespeople will be excluded from the R&D scheme. But it is important to emphasise that advances in science or technology are made by industry professionals of all backgrounds, not just those with doctorates. Tradespeople that are likely to qualify are those working in a niche within their industry, providing services that are hard to find elsewhere on the market.
To gauge whether your company has taken on any work that qualifies for R&D, consider the following:
Have you taken on any projects where the standard practices of your industry were not applicable for the work you did? If the answer to this is yes, your company is likely to have undertaken some form of research & development to meet the demands of your client. Whether this would qualify as R&D as per HMRC’s definition is dependent upon an underlying attempt to increase the capability or understanding in a field of science or technology.
Would someone with expertise in your industry consider your work an attempt to make a genuine advance in the field? If the answer is yes, you stand a good chance of claiming for R&D tax relief for your work. Think of it like this, although your company’s work may be commercial, the time and resources you have spent to go beyond the knowledge of your industry were not paid for. Principally, the R&D scheme is supposed to incentivise companies to invest resources to push the boundaries of their industry, especially when success is not guaranteed. This is why an attempt at an advance doesn’t need to be successful to qualify as R&D.
Have you thought about taking on projects in the past, but had to refuse them because although your company were qualified to devise a solution, the risk of losing out on money wasn’t worth taking?
Or perhaps you’ve done this work already, but you’re not sure if it will qualify as R&D. Whatever your situation, do get in touch with the team here at Kirby & Haslam. One of our expert tax advisors will offer you thorough guidance and support, enabling you to submit your claim with confidence.