How to write an R&D Tax Credit Report to meet 2023 Guidelines.
How to write an R&D Tax Credit Report to meet 2023 Guidelines.
2023 has been a turbulent time for the R&D Tax Relief scheme. Amongst many other changes, one of the most significant has been the introduction of the ‘Additional Information Form’. Your agent completes this form via a portal on the HMRC website. One of the insights this gave us was that Vantage R&D was already writing up reports in a manner that HMRC was looking for.
However, many people unsure whether they qualify for Tax credits look for examples of R&D Tax Credit reports, so we thought we’d give you one based on a real-life example. The figures and methods in this example have been changed to protect the client, but the example remains relevant as a guide.
Project Overview
The objective of this R&D project was to significantly increase the power output of a standard Kawasaki 600cc motorcycle engine to compete in the World Supersport championship. The standard engine produced 123bhp, while competitors were rumoured to have engines exceeding 150bhp. The challenge was to bridge this power gap without precise knowledge of the competitors' methods.
1. Main Field of Science or Technology
Interpretation: You need to identify your project's specific area of science or technology. This could be anything from software engineering to materials science. Remember, advancements in pure arts, humanities, and social sciences don't qualify, but from April 2023, mathematical advancements are considered science for R&D tax purposes. Technology refers to practically applying scientific knowledge.
Example: This project falls under the field of mechanical and automotive engineering, with a focus on internal combustion engine performance optimisation.
2. Baseline Level of Science or Technology
Interpretation: Before starting your project, explain the existing scientific knowledge or technological capability. This is your starting point or 'baseline.' For instance, if you're improving a device, describe its current features and capabilities. If you're exploring new knowledge, state what's already known in that area.
Example: Initially, the Kawasaki engine's baseline was established at 123 bhp. Conventional tuning methods such as modifying cam profiles, adjusting valve timings, and optimising fuel maps had increased the output to 138 bhp.
Despite these improvements, the path to achieving further gains beyond 138bhp was not evident, especially considering the diminishing returns on power output in small-capacity engines. The following was researched:
Consultations with Experts: Consultations were held with automotive engineering experts to understand motorcycle engines' current peak performance capabilities in the racing sector, especially given the limited European exposure to this new bike model.
Patent Searches: Comprehensive searches were conducted in databases like Google Patents, EPO Espacenet, USPTO, and WIPO PATENTSCOPE. The focus was on bell mouth development for motorcycle engines. The absence of specific patents in this area suggests that this research area might be relatively unexplored in the public domain, emphasising the innovative nature of the research and the genuine R&D effort.
Technical Forums & Online Communities: Engagements were made in technical forums and online communities where motorcycle engine enhancements were discussed, with particular attention to any insights on the Kawasaki model.
3. Advance in Scientific or Technological Knowledge
Interpretation: Describe the scientific or technological advancements you aimed to achieve, using the baseline as a reference. An 'advance' means a significant improvement recognised by experts in the field. This could be creating or significantly improving a process, material, device, product, or service. It's not just about minor upgrades but about substantial, non-trivial developments.
Example: Advancements were sought in the form of innovative air intake designs and ignition timing strategies to push the engine's performance beyond the conventional tuning limit of 138 bhp.
The project aimed to develop technology to increase the power output of the Kawasaki motorcycle engine from 123 bhp to 150 bhp, an 18% increase. This was achieved by developing and implementing new bell mouth shapes and heights, modifying airflow through the air box, and reshaping the inlet ports in the head.
Type of Advance: An appreciable and non-trivial improvement of an existing item or process.
4. Scientific or Technological Uncertainties
Interpretation: Detail the specific scientific or technological challenges you faced that were not easily solvable. These are uncertainties where the outcome isn't known from the start, and you can't find the solution through simple discussions or standard practice. Explain why these uncertainties were a challenge for the industry, not just for your company, and why an expert in the field would also find them challenging.
Example: The project faced uncertainties related to the optimisation of air intake geometries and the adaptation of ignition timing to the new method of engine speed measurement introduced by Kawasaki.
Uncertainty Description: The primary uncertainty was whether the combination of new bell mouth shapes and heights, modified airflow, and reshaped inlet ports would increase the desired power output without compromising other engine parameters or the overall reliability of the motorcycle.
Industry-wide Relevance: Achieving such a significant power increase while maintaining engine reliability and performance is a challenge recognised across the motorcycle racing industry.
Professional Perspective: Competent professionals in the field of automotive engineering would recognise the challenge of achieving an 18% power increase in the Kawasaki engine, given the already optimised design by Kawasaki Japan engineers.
5. Overcoming Uncertainties
Interpretation: Describe the R&D activities you undertook to address the uncertainties. This should include direct activities (like creating or adapting software or equipment) and indirect activities (like planning and administrative tasks). Explain the methods you used, whether the uncertainties were resolved, and why. It's essential to show that overcoming these challenges wasn't straightforward and required genuine R&D efforts.
Example: A systematic approach to R&D was employed to overcome these uncertainties, involving extensive testing and iterative development.
After hundreds of tests with various combinations of bell mouths and air box configurations, along with adjustments to the ignition timing, the team resolved the uncertainties and a power output of 150bhp, marking a substantial improvement for the engine's size and capacity.
Summary
When writing your report, think of it as telling a story. Start with the background (the baseline), then describe the goals (the advances), the challenges (the uncertainties), the journey (the R&D activities), and the outcome (whether you overcame the uncertainties). Ensure to provide enough detail to illustrate the complexity and novelty of your R&D project, and always relate it to the broader industry context to show that your work contributes to the field.
Vantage R&D
In the competitive landscape of R&D tax credits, the difference between a successful claim and a missed opportunity often hinges on the depth of expertise and precision in the claim process. Vantage R&D Consulting stands at the forefront of this niche, offering a beacon of guidance through the intricate maze of HMRC's guidelines and UK tax law. Our consultancy is not just about navigating the complexities; it's about leveraging our specialised knowledge to maximise your claim's potential while ensuring full compliance.
The value of an expert like Vantage R&D becomes particularly evident during turbulence within the R&D tax credit scheme. As HMRC intensifies scrutiny of claims, the margin for error narrows. Our seasoned professionals, with their finger on the pulse of ever-evolving tax legislation, ensure your claim is built on solid ground. We don't just prepare claims; we craft them with a meticulous eye, ensuring every element of your R&D activities is captured accurately and presented compellingly.
Moreover, the realm of R&D tax credits is not just about what you know but how you articulate it. The technical narrative is as crucial as the financial figures, and this is where Vantage R&D's expertise shines. We understand the language that resonates with HMRC, translating complex technical jargon into a coherent story that underscores the innovation and effort invested in your projects.
In essence, partnering with Vantage R&D Consulting is not just a prudent choice; it's a strategic move to ensure your company's innovations are recognised and rewarded as they deserve. With us, you don't just submit a claim; you submit a testament to your company's commitment to advancement, crafted by experts who are as invested in your success as you are.