Qualifying Costs and Activities for R&D Tax Relief?

In many R&D projects, specialist expertise is required, leading to the subcontracting out of specific tasks. The cost of subcontractors or external specialists who contribute to the R&D work can be claimed. Examples in the maritime sector might include:

• Directly contributing to the development of advanced hydrodynamic modelling through external collaboration.
• Specialists working on the creation of marine fuel cells or renewable energy devices.
• Engineering firms contracted to develop new construction methods for shipbuilding.

Materials and consumables used during the R&D process are also eligible for tax relief. These include:

• Raw materials used in prototyping new ship parts or systems.
• Components for testing marine propulsion systems or experimental equipment.
• Fuels, water, and electricity consumed in the process of developing and testing innovative technologies.

However, finished products intended for sale do not qualify. The focus is on materials that are integral to the development and testing phases.

Software costs incurred during R&D activities can also qualify for tax relief. This includes:

• The cost of software licenses necessary for developing or testing marine technology.
• Licensing costs for specialised engineering or computational software used in the design, testing, or optimisation of R&D projects.
• Design and simulation software employed in the development of 3D prototypes or virtual testing environments.

These costs should be linked to the R&D project to qualify.

The cost of utilities, such as electricity, gas, and water, that are used during the R&D process may be claimed. For example:

• Energy consumed while testing a prototype propulsion system in a controlled environment.
• Water used in testing equipment that improves marine biofouling detection and prevention.

Only the portion of utility expenses used for R&D activities is eligible, so businesses need to maintain accurate records of usage.

For accounting periods beginning on or after 1 April 2023, qualifying expenditure includes data licence costs and cloud computing costs. A data licence is a licence to access and use a collection of digital data.

Cloud computing includes:

• Data storage
• Hardware facilities
• Operating systems
• Software platforms

You can claim for most data and cloud computing costs spent on R&D. You cannot claim data and cloud computing costs that are indirectly related to your R&D project. Eligible costs include:

• Data analysis tools used to enhance vessel operations through big data analytics.
  
• Cloud computing or server costs directly associated with running simulations, processing large datasets, or supporting other R&D activities.

When it comes to claiming R&D tax relief, both directly qualifying costs and indirectly qualifying costs can be eligible for relief. However, it's important to note that not all aspects of a project will necessarily qualify. Rather, it is the specific activities and the associated eligible costs within the project that determine eligibility for relief.

Examples of direct qualifying Activities:

The expenses related to creating prototypes and conducting tests are a vital part of R&D in the maritime sector. Eligible costs include:

• Expenses for building first-article vessels or marine components.
  
• Costs of testing new technologies, such as innovative sonar equipment or unmanned marine vehicles.
  
• Quality assurance testing to ensure compliance with safety and regulatory standards.

These costs must be directly associated with the design and development process and should not be part of routine production.

Contributions to independent research or collaborative projects with universities and research institutions can sometimes qualify. These costs include:

• Fees paid to academic institutions for joint research on marine technology.
  
• Contributions to independent projects aimed at developing sustainable maritime solutions.

While these expenses may not be as commonly claimed as direct costs, they can still be significant in fostering innovation.

Indirectly qualifying costs are those that are not directly involved in the R&D work itself but support the R&D activities. These costs can still contribute to your claim for R&D tax relief. 
Indirectly qualifying costs are those that are not directly involved in the R&D work itself but support the R&D activities. These costs can still contribute to your claim for R&D tax relief. Examples include

Examples of indirect qualifying Activities:

If employees undergo training directly related to an R&D project, those costs might also qualify. For instance:

• Training staff on the use of new AI technologies being integrated into marine robotics.
  
• Courses for engineers learning to operate new prototyping tools.

These training expenses need to be essential for the successful completion of the R&D project.

• Staff involved in administrative roles, such as project managers or coordinators who organise R&D activities, track progress, and ensure compliance with regulations, can contribute to the R&D claim

• The maintenance of specialised marine equipment, such as research vessels, propulsion systems, or hydrodynamic testing equipment, can qualify as an indirect activity. While this maintenance isn't directly part of the R&D process, it ensures the equipment remains in working order and is available for use during R&D activities.

R&D tax relief is designed to encourage companies in the maritime industry to invest in innovative projects by offsetting the costs involved, including staff salaries, subcontractor fees, prototyping materials, and software costs. However, determining which costs qualify for R&D tax relief can be confusing. Which is where we come in. 

By analysing the necessary information, we ensure eligible costs and activities are accurately identified and documented, allowing businesses to maximise their claims and reinvest the savings into future innovations. Understanding and optimising these claims enables marine companies to fully benefit from this valuable financial incentive, supporting ongoing development and growth within the sector.