What’s the difference between a commercial project and an R&D project?

To help you decide whether your project qualifies for R&D tax relief, it can be helpful to think about the distinction between a commercial project and an R&D project. Generally speaking, a commercial project is defined at a higher level and encompasses the whole commercial journey from start to finish, whereas an R&D project is a subset of activities that focuses only on resolving the challenging scientific or technological aspects of the commercial project. This also means that just because something is commercially innovative; it doesn’t necessarily qualify for R&D tax relief.

Why is this important?

The purpose of writing the supporting technical narrative is to detail the activities that make up an R&D project. A common mistake is to focus on the commercial project by centering discussions around commercial or business aims and commercial uncertainties. Doing this dilutes the technical narrative with non-qualifying activities and it can even weaken the claim in the face of a HMRC enquiry. This is often the case where key indicators of an R&D project aren’t clearly explained or split out.

However, this doesn’t mean the overarching commercial project shouldn’t be mentioned at all. The commercial aim is ultimately what drives the R&D activity and provides important context as to why the R&D project has come about. 

Within Novel, when creating a Project, there are fields where you can add the associated Technological/Scientific Uncertainty, Commercial Aim, Advancement Sought and Baseline Knowledge. You will notice that you can add multiple activities but only one uncertainty per project. This ensures that the focus is on compartmentalising a commercial project into the various R&D project(s), rather than allowing for the one project with many uncertainties which may ultimately blur the line between that of a commercial project and that of an R&D project.

Where do we draw the line?

An R&D project can be distinguished by considering what type of activities are taking place. Certain activities simply aren’t regarded as R&D as they do not relate to any scientific or technological aspect of the project. For example, commercially necessary but non-R&D activities include:  

·   competitor research and analysis

·   supply chain & procurement management

·   production & logistics

·   marketing & sales

For this reason, in Novel, when Creating an Activity, we have a specific list of Activity Types, which are most commonly featured in R&D projects and claims. If this list doesn’t include your activity which you believe goes towards resolving technological or scientific uncertainty, you still have the option to select Other and specify the work in detail.

commercial, randd, research and development, novel

What are the boundaries for R&D?

R&D starts when a scientific or technological uncertainty is identified and continues until the uncertainty is resolved, or when work aimed at resolving the uncertainty ceases. This work is often referred to as an ‘activity’ and during an R&D project there are two qualifying types of activity:

·   directly contributing activities; and

·   indirectly contributing activities.

Direct or indirect?

Directly contributing activities are all activities that directly contribute to the resolution of technological or scientific uncertainty. This work is often carried out by those who have hands-on experience with the technology or science at the business, such as engineers, developers and scientists.

Indirectly contributing activities include a multitude of activities which go towards supporting the above directly qualifying activities. A full list can be found within paragraph 31 of the BIS guidelines, though to name a few this includes: feasibility research, HR and Finance support, maintenance of R&D equipment and premises, scientific or technological administration. Note, these activities are only relevant insofar as they support directly qualifying activities, rather than the business as a whole.

Want some more information?

The Novel platform contains many educational pieces which are designed to inform and educate the user on what projects and activities qualify. If you have any questions, either about the educational content or something we haven’t covered, feel free to contact support via Intercom and we will be happy to help.

Do your next R&D tax relief claim with Novel.

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