What costs cannot be included in an R&D tax relief claim?

As an R&D tax consultant, we help accountants and innovative businesses make the most of R&D tax relief claims by highlighting the full range of eligible costs.

However, many innovative businesses and accountants still try to include costs that do not qualify when compiling their R&D tax relief claims.

In order to preserve the validity of R&D tax relief claims, it is important to know what is ineligible and should be left out of your calculations.

What costs are ineligible for an R&D tax relief claim?

Revenue are clear that only the costs of activities that contribute to R&D work can be included in an R&D tax relief claim.

That might seem fairly obvious, but there is a range of costs that can slip under the radar as people forget to include them.

These involve costs associated with indirect supporting activities like security and admin.

However, the scope of eligible costs is finite and there are activities that, even if they connect to the project, cannot be included.

It may be surprising to discover that the costs of production cannot be included in an R&D tax relief claim.

The moment when an innovative business is able to turn its innovation into something that can hit the production line might be the crowning jewel of success to cap off a project, but the issue is that it falls beyond the scope of R&D.

Production costs are a post-success cost that is indicative of the fact that no more work needs to be done.

In the same sense, the cost of getting an innovation patented cannot be included in an R&D tax relief claim.

That is not to say that an R&D tax consultant cannot provide support with accessing services like Patent Box, but this is a separate issue from an R&D tax relief claim.

Revenue draw a very clear distinction between R&D and market-related activities.

Any costs associated with market research or making aesthetic improvements cannot be included in an R&D tax relief claim.

It is important to keep this in mind, as many technical narratives are also hindered by too much of a focus on these activities.

What happens if these costs are included in an R&D tax relief claim?

Any R&D tax relief claim compiled by us will not feature ineligible costs, as we work with accountants and innovative businesses to filter out ineligible costs and activities.

However, there are times when R&D tax relief claims are compiled without our support and these claims may feature ineligible costs.

When this happens, the claim may be subject to an enquiry from Revenue.

It will not be possible to defend the inclusion of anything that is ineligible so these costs will need to be removed during the enquiry defence process.

Hopefully, the rest of the R&D tax relief claim will still be valid, at which point Revenue may still award the amount of relief that is appropriate for the qualifying costs.

It will be up to Revenue to decide whether the error was a result of carelessness or deliberate obfuscation.

The penalty inflicted depends on the findings and the best outcome for the enquiry defence at that stage would be a suspension of the penalty.

We work to defend eligible R&D tax relief claims from enquiry, even if they have not been compiled by us.

Ultimately, we want more accountants and innovative businesses to understand what costs can and cannot be included in an R&D tax relief claim to improve compliance and help make the scheme more effective.

Approach R&D tax relief claims with confidence by speaking to our team today.  

Adam Bointon