Can unsuccessful projects use the R&D Tax Credit scheme?
By definition, a huge part of research and development (R&D) is the process of overcoming technical uncertainty. For innovators, this is a big part of what deems R&D to be a success.
Sometimes, inexperienced R&D advisors only include successful projects in R&D claims, as they’re more straightforward to present within the financial and technical reports.
But focussing solely on successful projects can lead a company to undervalue the size of their claim, and miss out a huge chunk of R&D tax relief.
In fact, claiming R&D Tax Credits for an unsuccessful project shows HMRC that you've had an innovative idea and risk has been taken in trying to bring a new product, process, or service to life.
Risk-taking makes innovation possible. And in business (and life), failure at some point or another is a reality.
R&D Tax Credits are not just for rewarding successful projects, just as they’re not only available to profitable businesses.
In fact, R&D Tax Relief is perhaps most useful when companies need to go back to the drawing board and pursue a different strategy.
This UK initiative not only mitigates the financial repercussions of a failed project, but also makes risk-taking and investment in innovation more sustainable.
HMRC guidelines clarify that:
“Not all projects succeed in their aims. What counts is whether there is an intention to achieve an advance in science or technology, not whether ultimately the associated scientific or technological uncertainty is completely resolved, or resolved to the degree intended.”
Examples of unsuccessful projects that have successfully claimed R&D tax relief
💡 A self-tinting, shatterproof glass
This client had aimed to develop a new type of glass that tinted at the touch of a button, and could withstand severe impact without shattering. In their team’s attempts, they found great difficulty in combining the polymers and liquid crystals necessary to their innovative material.
After testing different compounds and alternatives, the client could not reach a successful conclusion within the r & d claim period. Fortunately, support from R&D Tax Credits allowed them to persevere.
💡 Blockchain machine learning
This client attempted to use AI to improve the security of blockchain transactions. The implemented machine learning technology struggled to recognise the extremely complex algorithms involved in blockchain activity.
After trial and error, the technology failed to achieve the recognition necessary to regulate blockchain transactions. Despite this, a successful R&D Tax Credit claim was delivered to the client.
💡 Architectural Restructuring
This client had recently used innovative architectural structuring to design and construct a building. Upon completion, new property development surrounding the building diminished incoming light into the original build by such a degree that it no longer adhered to the Rights of Light Act (1959). The Rights of Light Act is defined as the “legal easement giving a property owner the right to enjoy the light passing over somebody else’s land and through defined apertures, typically windows, in their building.”
Because of this, the new structuring of the build had to be totally redesigned, with R&D driving the attempts of capturing sufficient light within the little space they had.
Unfortunately, this client had numerous unsuccessful attempts at modifying the construction project. Nevertheless, they were able to take advantage of the R&D Tax Relief initiative.
Unsuccessful R&D is still R&D!
R&D Tax Credits were introduced to encourage companies to take the leap and start creating cutting-edge products and services. An integral part of the scheme’s motivation is to mitigate the mistakes made along the way.
Whilst the successful breakthroughs in research and development dominate headlines and media attention, failures continue to spur curiosity and exploration.
You might not know that loss-making businesses are in fact eligible for the highest portion of R&D Tax Relief – up to 27% of qualifying expenditure!* That’s not to say that profit equates to success, but it’s fair to assume that failed R&D projects will be making a loss.
So if you’re wondering whether your business is eligible for R&D Tax relief, or are concerned that your current advisor is failing to claim for the full extent of your R&D activity – book in a free consultation with our R&D Tax Specialists.
*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.