Sage LakhaniHead of Consulting
Having started her career with PwC London, Sage has previously held positions at two boutique tax consultancies working with entrepreneurs and growing businesses. She is also a qualified Chartered Tax Adviser.
Copies of existing products, processes, materials, services or devices can still be eligible for R&D tax credits: what matters is that the details of the original were not readily available or deducible.
For tax purposes, R&D projects do not need to be seeking to create something exclusively or entirely new (though this can be the case). You are not expected to be reinventing the wheel in order to be eligible; but you should be using science and/or technology to develop new products, processes, materials, services, or devices. This can include making improvements (which must be demonstrably ‘appreciable’ improvements) to what already exists.
Does my project need to be successful?
Your project(s) needn’t have been ultimately successful to qualify – failure is a common indication of a project’s inherent uncertainty – but ordinarily, the advance you have sought will fall into one or more of the following four categories:
1) An extension of overall knowledge/capability in a particular field of science or technology (this is distinct from an extension in a company’s own knowledge)
2) Creation of a new product, process, material, service or device which incorporates or represents an ‘overall extension’ as described above.
3) An appreciable improvement: making scientific or technological changes to something that already exists to the point where it would generally be acknowledged by those in your field as ‘better’ than the original (you may have quantitative evidence to demonstrate this ‘betterness’); and
4) Using science or technology to duplicate the effect of an existing product, process, material, service or device but in a new, improved, or fundamentally different way.
In every case, your scientific or technological development(s) would be expected to exceed routine adaptations, or minor tweaks and fine-tuning as part of the eligible advance.
Can you claim R&D if the product is a copy?
‘Copying’ something that already exists is a common query for companies who are new to R&D tax credits. You can still claim R&D tax credits on a product, process, material, service or device which is a copy of something that already exists or has been previously developed. If a particular advance has already been sought or realized, but the details of how it was achieved are neither readily available nor readily deducible then the associated development can still be eligible.
It is important to note, however, that the routine adaptation or copying of something that already exists will not be R&D for tax purposes. You must be able to demonstrate that your particular aims or objectives could not be readily deduced and that the project presented genuine ‘uncertainty’ which required more than routine analysis, copying, or adaptation of what already existed.
If you are unsure about whether your projects are eligible, or how to evidence the advances you have sought, it is always best to speak with a trusted adviser to make sure your claims are accurate.