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A common cause of confusion when engaging with R&D tax relief claims is knowing where the line is drawn between innovation and an advance.
They may seem synonymous and are frequently used interchangeably, but Revenue have a clear definition of what constitutes an advance for R&D tax relief purposes.
In light of a recent tribunal ruling that illuminated the difference, it is worth accountants and innovative businesses understanding the core difference.
Why does innovation not always mean an advance?
A key distinction used by Revenue to determine whether something is considered an advance is whether the project seeks to advance the overall knowledge or capability rather than just that of a company.
This means that an advance should be attempting to:
- Achieve physical results, such as creating a new product
- Achieve an improvement to a process
- Achieve new knowledge or capability
Above all, an advance has to address a scientific or technological uncertainty and must not be readily deducible by a competent professional.
What does the tribunal ruling reveal about the nature of an advance?
The tribunal ruling in question is M&C Educational Training Services Ltd (M&C) v Revenue and centres around an education company attempting to appeal a rejected R&D tax relief claim.
At its core, the tribunal reveals that businesses need to have a clear understanding of what is novel for them and what is entirely novel.
In the case of the tribunal ruling, it was apparent that nothing fundamentally novel was being achieved.
However, the company in question were doing something entirely innovative.
They determined that no other business was approaching education in the same manner as them and they devised a fresh methodology.
Companies that work in education are unlikely to qualify for R&D tax relief, as there is a limited scope in seeking a novel advance that would fit Revenue’s definition.
This is because, even if no one else has embarked on a particular approach to teaching, it is unlikely that a previously impossible way of teaching will be made possible by a company of this kind.
The only way in which a project focused on education might qualify as R&D is if it involved developing new technology or software that was truly innovative and that required the field of science or technology to be advanced.
This would be more of a technology or development claim rather than an education claim and centring the focus is the reason why a technical narrative accompanies an R&D tax relief claim.
Bizarrely, Revenue do not have a publicly available, defined list of eligible fields of science and technology for claimants to reference.
While it can be argued that they leave it vague to allow for some surprises from niche sectors, the fact that some areas are essentially ineligible means that a lack of information is hindering the ability to submit R&D tax relief claims.
As R&D tax consultants, we can help innovative businesses and accountants determine whether they are likely to face challenges given the field in which the R&D tax relief claim is based.
Where the claim is valid regardless of origin, we will work to compile and defend the claim as appropriate.
How can businesses know the difference between innovation and an advance?
Ultimately, an advance is what is being sought by Revenue and should be what is sought by the business itself.
If unsure, it is best to seek the advice of an R&D tax consultant to ensure that only valid R&D projects are considered for an R&D tax relief claim.
We only ever proceed with valid claims and will work to defend those claims in the event of an Revenue enquiry.
Don’t let R&D tax relief confusion hold you back. Speak to our team today.
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