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R&D Tax Credits - are test tubes required?

shutterstock_301134275So you have a new idea, and you really believe that you can make it work, but you need to spend time and money developing the idea and testing the best way to deliver the product.

This design and implementation of a new, or an improvement to an existing product, is what is commonly referred to as Research & Development (R&D).

Do you know that certain types of ideas or products may qualify for R&D Tax Credits?

The HMRC guidelines for R&D Tax Credits advise that the company can only claim relief if the R&D project seeks to "achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”.

With this definition it’s no wonder that people generally think that R&D Tax Credits only apply to highly technical companies, the sort where employees wear lab coats and have an abundance of test tubes in stock!

But this is not the case, the scheme is quite broad, and in reality, businesses can qualify for tax credits if they are developing a new product or service which is seen as an advance in science or technology. Put in more simple terms this can be a new product, such as a new cleaning product, or an improved process such as an operation which generates less waste. /blog/so-what-is-rd-tax-credit-and-does-my-business-qualify

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It is also useful to note that not all of your business activity has to be seen to advance technology for you to be able to claim tax credits. The claim for relief will be limited to those costs which are directly attributable to the R&D elements.   

It is therefore important that the R&D costs are isolated in a “project” and that this project should consist of a series of activities. You will need to ensure that the boundaries of the project are correct, encompassing all of the activities that collectively aim to resolve the scientific or technological issue.

Of course there is no guarantee that the research will produce any usable or marketable products, as not all projects succeed in their aims. But with regard to R&D Tax Credits, what counts is whether there was an intention to achieve an advance in science or technology, so even if the product or process does not succeed you may still qualify for tax credits.

So it certainly is an area which you should be aware of, and should explore in more detail, especially with the recent government announcement of R&D Tax Credit Scheme advance assurance for SMEs, due to come into operation in late November 2015. This advance assurance will allow your company to ‘test the water’ before committing valuable resources to the R&D element of your business plan./blog/rd-advance-assurance

If you are interested in finding out more about R&D Tax Credits and would like our help please contact us at Sapphire Capital Partners LLP. We are happy to help.

Written by Violet Spence

As a manager at Sapphire Capital Partners LLP, Violet spends her days assisting clients with SITR, SEIS and EIS schemes for companies and applying to HMRC for advance assurance on behalf of clients. 

Contact her by email at

For further information and advice on the Social Enterprise Tax Relief, Seed EIS or EIS, please contact Sapphire Capital Partners LLP at the following: 


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