Chapter CIRD81900

Record NumberCIRD81900
Published date11 March 2016

These Guidelines are issued by the Secretary of State for the Department of Trade and Industry for the purposes of Section 1006 Income Tax Act 2007. They replace the previous version issued on 28 July 2000.

The BEIS guidelines include a number of terms which are intended to have a special meaning for the purpose of the guidelines. Such terms are highlighted on first appearance and defined later. Unfortunately it is not possible to include highlights in the publicly available version of page 81900 of the CIRD. If you wish to see a version which includes the highlights it can be seen here .

  1. Research and Development (‘R&D’) is defined for tax purposes in ICTA88/S837A.[1] This says the definition of R&D for tax purposes follows GAAP. SSAP13 Accounting for research and development is the SSAP which defines R&D. The accountancy definition is then modified for tax purposes by these guidelines, which are given legal force by Parliamentary Regulations. These guidelines explain what is meant by R&D for a variety of tax purposes, but the rules of particular tax schemes may restrict the qualifying expenditure.[2]

  2. In these guidelines a number of terms are used which are intended to have a special meaning for the purpose of the guidelines. Such terms are highlighted on first appearance and defined later.

[1] For the purposes of research and development allowances (Part 6 CAA01) this definition is extended to include oil and gas exploration and appraisal as defined in ICTA88/S837B. These guidelines apply to this extended definition as well.

[2] The original footnotes 2 and 3 to the 2004 Guidelines (which were not themselves part of the Guidelines) have been removed. This is because those footnotes stated that the qualifying indirect activities (QIAs) listed in para 31 are R&D tax relief depends on a number of factors, but there is no blanket exclusion. For further explanation see, for example, HMRC guidance at CIRD83000. These revised footnotes are not part of the Guidelines. Revised footnote prepared by Department for Business, Innovation and Skills in consultation with HMRC December 2010.

The definition of R&D

3. R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.

4. The activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.

5. Certain qualifying indirect activities related to the project are also R&D. Activities other than qualifying indirect activities which do not directly contribute to the resolution of the project’s scientific or technological uncertainty are not R&D.

Advance in Science or Technology

6. An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.

7. An advance in science or technology may have tangible consequences (such as a new or more efficient cleaning product, or a process which generates less waste) or more intangible outcomes (new knowledge or cost improvements, for example).

8. A process, material, device, product, service or source of knowledge does not become an advance in science or technology simply because science or technology is used in its creation. Work which uses science or technology but which does not advance scientific or technological capability as a whole is not an advance in science or technology.

9. A project which seeks to, for example:

a. extend overall knowledge or capability in a field of science or technology; or

b. create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or

c. make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or

d. use science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way (e.g. a product that has exactly the same performance characteristics as existing models, but is built in a fundamentally different manner), will therefore be R&D.

10. Even if the advance in science or technology sought by a project is not achieved or not fully realised, R&D still takes place.

11. If a particular advance in science or technology has already been made or attempted but details are not readily available (for example, if it is a trade secret), work to achieve such an advance can still be an advance in science or technology.

12. However, the routine analysis, copying or adaptation of an existing product, process, service or material, will not be an advance in science or technology.

Scientific or technological uncertainty

13. Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field. This includes system uncertainty. Scientific or technological uncertainty will often arise from turning something that has already been established as scientifically feasible into a cost-effective, reliable and reproducible process, material, device, product or service.

14. Uncertainties that can readily be resolved by a competent professional working in the field are not scientific or technological uncertainties. Similarly, improvements, optimisations and fine-tuning which do not materially affect the underlying science or technology do not constitute work to resolve scientific or technological uncertainty.

Other definitions

Science

15. Science is the systematic study of the nature and behaviour of the physical and material universe. Work in the arts, humanities and social sciences, including economics, is not science for the purpose of these...

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