A key concept in any R&D claim is what is in summary described as the advance. In more detail the advance is first mentioned in paragraph 3 of the Department for Business, Innovation & Skills Guidelines (BIS2004). The advance is defined in detail in paragraphs 6-12 with paragraph 6 being the most commonly quoted and something of a lynchpin statement on qualification.
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 deductible.
Department for Business, Innovation & Skills Guidelines
The term baseline is not included at all in guidelines. But it is logical if a company is going to attempt an advance it will be from the existing state of knowledge or capability in the field of science or technology in which the project is set. This existing state is the baseline. To get a little more involved in the Guidelines this baseline is the knowledge or capability that is in the public domain or is readily deducible for a competent professional. The Guidelines allow that another company may have delivered the advance sought first but as long as the “how they achieved it” is not available, it may be a trade secret, another company can do R&D with the same aims even if they are not the first.
For example, if the battery life in existing mobile phones based an identical level of usage was 24 hours at best and a project sought to develop a phone that had a battery life of 40 hours then the baseline would be 24 hours battery life and the advance would be increasing this to 40 hours. In this example the advance from the baseline is 16 hours of battery life.
In order to properly consider the advance from the baseline, a company has to place the R&D being claimed in an overall context (BIS2004 p6, p20-22). This is one of the many areas where R&D claims can become complicated and nuanced. What was the state of knowledge or capability at the start of the project? How does the project relate to that? Is the advance qualifying? Was it just an advance in the company's own capabilities or knowledge? These are just some of the questions that can be asked.
What is clear is that in defining an advance describing the baseline is an absolute necessity. A very useful question to always answer when making an R&D claim is therefore:
What is the baseline in science or technology that an advance is being measured against?
If that question can be answered correctly it is an important step in clearly demonstrating a project qualifies for R&D Tax Relief.
I would just qualify all the statements in this blog by saying they are a brief overview of quite lengthy Guidelines, more could and should always be considered in an actual claim. Every claim is different and should be assessed on its particular set of facts. This is where a good R&D consultant adds value. R&D claims are part of the Corporation Tax Regime with all that they entail. They involve a very lengthy set of Guidelines and correct interpretation. A common error is for decision makers in claiming companies to apply their own opinion on what R&D is. That is not a correct approach. In legal terms the only definitions for a UK R&D claim are in the BIS2004 Guidelines. Therefore, these must be followed. This does involve knowledge and experience. Please contact us today if you need advice in any aspect of an R&D claim.
Chris Toms MA MAAT – Compliance Director RandDTax.