Claims for failed/ unsuccessful R&D projects

One of the common misconceptions seen across all industries is the idea that R&D tax relief can only be claimed where a project has completed or where an end result was achieved successfully.

However, there is just as much relief available to companies that have incurred significant development into a new product or process which has not completed due to the scientific/ technological uncertainties that were faced, i.e., where a project has “failed.”

R&D tax relief can alleviate some or all of the financial burden that is faced by a company through lost time, effort, expenditure etc. that they had incurred on a failed project.

As set out in Government guidelines: “Even if the advance in science or technology sought by a project is not achieved or fully realized, R&D still takes place.” Para.10 Guidelines on the Meaning of Research and Development for Tax Purposes

The risk of failure is present at the outset of all R&D projects – so it is only right that the government policy accommodates businesses that have incurred losses on unsuccessful R&D.

The government incentive was not introduced as a reward to success, the introduction of R&D tax relief was intended to promote investment in innovation. Therefore, the relief should act as a safety net for businesses so that the risk of financial loss does not deter them from undertaking innovation within their industry.

Expenditure on a failed R&D project can be recovered up to two years from the accounting date that the loss was recorded. For example;

  • A company makes a loss of £100,000 on a failed R&D project in their financial year ended 31 March 2019.
  • This company can make a claim for R&D relief on this project up until 31 March 2021.

Furthermore, qualifying projects do not have to be externally/ client driven. Where a company attempts to make an appreciable scientific or technological improvement to an internal process – R&D relief would also be available for unsuccessful attempts, as with the externally driven projects.

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