Testing Activities

The definition of R&D includes activities that directly contribute to R&D. The 5th of March 2004 DTI Guidelines on the Meaning of Research and Development for Tax Purposes includes in the definition of activities which directly contribute to R&D testing and analysis undertaken to resolve the scientific or technological uncertainty.

Illustrative examples are given in the Guidelines which are designed to cast light on the principles explained therein. In part G of the examples it indicates that “Scientific or technological testing and analysis, which directly contributes to the resolution of scientific or technological uncertainty, is R&D…. So for example if testing work is carried out as part of the development of a pilot plant, this would be R&D, but once the design of the ‘final’ pilot plant had been finalised and tested, any further testing would not be R&D …. However, if flaws in the design became apparent later on, then work to remedy them would be R&D if they could not readily be resolved by a competent professional working in the field (in other words, if there was scientific or technological uncertainty around how to fix the problem….)”.

It is the context in which the testing is done that determines its eligibility. For example, if, in the process of routine development of a new product (Non-R&D work) the company performs testing of its component parts, such as motors or printed circuit boards, to ensure they meet their published specifications prior to using them, this activity is clearly not eligible. If however, the company has a qualifying R&D project and performs the same testing, this testing would be an eligible activity. Within the context of the R&D project this testing is required to establish that the component parts meet specifications. It is the same type of work, but when performed as part of the R&D project, the testing to establish that the parts meet published specifications is required to resolve the technological uncertainty.

Data Collection Activities

Activities that directly contribute to the resolution of technological uncertainties qualify for R&D tax relief. So, data collection activities that are undertaken for the purpose of directly resolving technological uncertainty would qualify for tax relief. Qualifying indirect data collection activities are R&D but are specifically excluded by virtue of paragraph 31 of the DTI Guidelines in qualifying for tax relief. (Qualifying indirect activities do not qualify for tax relief). So data collection that does not directly contribute to the resolution of technological uncertainty would not qualify for tax relief.

The Strategy

Data collection and testing form a large part of many R&D projects. Indeed, observation and analysis of results of trials or experiments is considered to be a core R&D activity. In order to maximize your claim, make particular note in your documentation that the data being collected or the testing being performed directly contributes to the resolution of technological uncertainty. Be prepared to show why all the data collected or all the testing performed was necessary for your analysis to draw your scientific or technological conclusion.

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