CIRD81910 - R&D tax relief: conditions to be satisfied: DTI guidelines (2004): commentary
Particular concepts
The 2004 guidelines are not intended to extend or restrict the
activities that qualify as R&D for the purposes of the relief
when compared to the 2000 guidelines. They draw on the 2000
guidelines (
CIRD81990), the commentary on those
guidelines (
CIRD81995), and practical experience of
those using them since the introduction of the guidelines.
The clearer structure of the 2004 guidelines, and our desire
to only have one authoritative text means that an extensive
commentary, of the type that accompanied the 2000 guidelines, is
not appropriate. We do however comment below on certain areas where
extra assistance has been requested.
Advance in science or technology
The 2004 guidelines make it clear that the principle test is
that there has to be a project that seeks to achieve an advance in
science or technology (para3). The activities that directly
contribute to achieving this advance through the resolution of
scientific or technical uncertainty are R&D (para4).
Para15 states that science does not include work in the arts,
humanities and social sciences (including economics). Many claims
have been erroneously made in respect of innovative business
products or services that do not incorporate any advance in science
or technology. So it is not enough that a product is innovative -
the question is does it represent an advance in the fields of
science or technology?
Scientific or technological uncertainty
This is dealt with in paras13 and 14 of the guidelines. These refer to whether a solution or method of achieving a solution is readily available or deducible to a ‘competent professional working in the field’.
Competent professional
The expression ‘competent professional working in the field’ has not been defined as the natural meaning is considered to be self-explanatory. In respect of their field of expertise one would expect such a person to:
- be knowledgeable about the relevant scientific and technological principles involved,
- be aware of the current state of knowledge, and
- have accumulated experience and be recognised as having a successful track record.
- Simply having worked in a field or having an intelligent interest in it does not, by itself, make a person a competent professional.
There may be differences of opinion between competent
professionals in a particular field. Where the view taken is a
legitimate one, and it has been reached by a competent professional
properly exercising his expert judgement then it should normally be
accepted.
To enable an opinion to be properly assessed as to its
contents and reasoning, an opinion offered by the company as being
that of a competent professional would need to explain clearly,
without the use of jargon, why there was considered to be
scientific or technological uncertainty, and should objectively
review the current state of knowledge, and the work carried out. A
simple assertion as to the R&D nature of the project is
unlikely to be satisfactory.
While due weight will be given to an opinion offered by the
company’s competent professional, it will not necessarily be
conclusive of the issues, and further enquiry may still be
needed.
Direct and indirect activities
The guidelines distinguish at paras26 - 28 between direct and
indirect activities that contribute to an R&D project. But the
guidelines do not only apply to R&D tax relief - they are also
used for other tax purposes.
For the purposes of R&D tax relief it is also necessary
to satisfy the statutory tests in the relevant legislation. In the
legislation it is only expenditure on direct activities that is
eligible for the enhanced deductions. FA00/SCH20/PARA5 (4) prevents
expenditure on staffing costs
CIRD83000 from qualifying if the staff
are engaged on indirect activities. FA00/SCH20/PARA8A (4) has the
same effect for externally provided workers
CIRD84000 and the provisions of
FA04/S141 apply similar restrictions for expenditure on consumable
items (
CIRD82300) and software (
CIRD82500). There is however no similar
restriction in respect of expenditure on subcontracted R&D (
CIRD84200).
Application to particular trades
In some fields there are particular difficulties in determining whether a project is R&D for the purposes of the relief. We intend publishing guidance on these as and when we have sufficient experience of claims to be able to offer useful comment. The specific fields currently addressed are:
