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Many companies and businesses believe that you can only claim tax credits for successful R&D projects. We’re here to tell you they’re wrong.
Throughout history, scientists and inventors would agree that failure is an essential part of research and that without it, none of their great discoveries, inventions, or theories would have been achieved. HMRC knows this:
“Even if the advance in science or technology sought by a project is not achieved or fully realised, R&D still takes place.” Para.10 – Guidelines on the Meaning of Research and Development for Tax Purposes
This quote proves that a failed R&D project is still an R&D project, and therefore, qualifies for tax credits.
The Aim of R&D Tax Credits
The main aim of R&D tax credits was never to reward successful projects but reduce the risk for businesses willing to research new and innovative technologies, products and services. As any company knows, risk-taking goes hand-in-hand with dealing with failure. However, how companies perceive failure needs to change. Companies shouldn’t focus on the negative aspects of failure but on the positives of researching and developing new technologies. The simple act of trying something new and different has value.
You can retrospectively claim for an R&D project for up to two years since the date you recorded a loss, so long as you meet the criteria. For example:
If you recorded a loss on a failed project in the financial year 2020, you could still claim up until the end of the financial year 2022.
Final Thoughts
HMRC established the R&D tax credit as an incentive for companies to explore new ideas, NOT to reward success.
For many companies, the risk of exploring new ideas can often be too high of a risk. That is why the R&D tax credits incentivise actions and not results. When the risk of financial loss is alleviated, more businesses are willing to explore innovations.
Lessons to Take from a Failed R&D Project
The main lesson you can learn from any R&D project is that the pros outweigh the cons. Once the risk of loss is reduced, you are encouraged to pursue new R&D projects, regardless of success or failure.
In business and life, you should view failed projects as learning opportunities. Make records of what when wrong and what can be done differently next time. Research and Development tax credits greatly reduce the risk of experimenting with new tools, systems, and technologies that will benefit your business, whether in the lessons from a failed project or the positive outcomes of success.
Don’t hesitate to contact TS Partners for any query related to your R&D Project and Tax Credits.
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