By Nigel Holmes, Senior Tax Specialist at Catax.
Qualifying Indirect Activity
For costs to qualify for Research & Development (R&D) tax relief, they have to contribute to the R&D activity being undertaken. This is the reason why certain costs such as market research do not qualify. That said, many claimant companies only consider the obvious costs, in particular in respect of staff costs. In other words, those that directly contribute to the R&D activity.
However, HMRC’s manuals which contain the BIS Guidelines clearly defines Qualifying Indirect Activity as an activity where the costs will qualify for R&D tax relief.
The following is their guidance in full:
“31. These are activities which form part of a project but do not directly contribute to the resolution of the scientific or technological uncertainty. They are:
a. scientific and technical information services, insofar as they are conducted for the purpose of R&D support (such as the preparation of the original report of R&D findings);
b. indirect supporting activities such as maintenance, security, administration and clerical activities, and finance and personnel activities, insofar as undertaken for R&D;
c. ancillary activities essential to the undertaking of R&D (e.g. taking on and paying staff, leasing laboratories and maintaining research and development equipment including computers used for R&D purposes);
d. training required to directly support an R&D project;
e. research by students and researchers carried out at universities;
f. research (including related data collection) to devise new scientific or technological testing, survey, or sampling methods, where this research is not R&D in its own right; and
g. feasibility studies to inform the strategic direction of a specific R&D activity.
32. Activities not described in paragraph 31 are not qualifying indirect activities.”
So while this may not be all-encompassing, it provides scope to include many additional costs often overlooked. This could be as simple as a small proportion of the payroll costs for admin, HR and finance staff.
As one famous supermarket says, “Every Little Helps”.
This is one of the many steps that Catax takes to ensure our clients’ claims are maximised within the legislation and the guidelines.