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Claiming tax relief for failed R&D projects

Director & Head of Policy
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The business world is filled with gurus advising companies to ‘fail fast’ or ‘fail better’. But business owners and decision-makers know failure comes with a price tag attached.

Yes, of course, innovation and risk-taking are important and failure is a reality in life let alone business, but funds are also limited (especially these days). There is, then, a balance that needs to be struck between innovating and investing your resources prudently.

R&D tax relief is a powerful way to maintain this delicate balance. The incentive is not solely aimed at rewarding successful projects. It can help lessen the financial sting of a failed project as well, making risk-taking and investment in innovation more sustainable.

Failed R&D is R&D

No ifs, buts or maybes about it: Failed R&D can unambiguously count as R&D for tax purposes. As the government’s guidelines clearly outlines:

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

Para. 10 Guidelines on the Meaning of Research and Development for Tax Purposes

Not only is claiming for unsuccessful R&D allowed – it’s one of the pillars of R&D tax credits as a policy. Risk-taking sometimes means, as any entrepreneur or innovator knows, reckoning with failure. That’s precisely why R&D tax credits were set-up with this dual nature of risk in mind.

Remember: It’s possible to retrospectively file R&D tax credit claims with HMRC. You have two years from the end of your accounting period to submit one.

Has your business done R&D that wasn’t a commercial success?

Speak to us about any unsuccessful projects you’ve undertaken. You could recoup a substantial portion of the money you invested in a failed R&D project.

R&D tax relief for failed R&D projects

R&D tax credits aren’t just a reward for success. The incentive is intended to incentivise certain behaviours. And in business (as in life) failure should be viewed in a more nuanced way. Exploration and curiosity have value.

Indeed, unsuccessful R&D is perhaps where the transformative power of this incentive shines brightest. We often talk about a ‘culture of R&D’ at ForrestBrown. By lessening the risks attached to innovation, it becomes easier for that culture to take hold.

Be bolder, go that little bit further, allocate a bit more resource and then use R&D tax relief to support the cost of any failure. You may fall short, but those costs may be eligible for R&D tax relief.

Failed R&D project examples 

One of the many perks of working in R&D tax credits is seeing amazing feats of ingenuity up close. It’s wonderful to share in the success of our clients – but, as we’ve already established in this article, failed R&D comes with the turf as well.

We frequently work with clients who have tried something brave, novel, unusual or just plain difficult and fell short of the desired outcome. For these clients, the benefit helps recoup some of the money spent on a failed project.

Here are a few examples of failed projects we’ve helped clients claim R&D tax credits for:

Have you attempted a difficult project?

Have you attempted a technically difficult project in the past two tax years? You could claim some of that money back through R&D tax credits.

Funding for failed R&D

In the simplest terms, R&D tax credits are a way to fund R&D projects and mitigate losses incurred by failed R&D projects. But at a deeper level, the incentive also encourages a behavioural switch.

Exploration and curiosity have value, and R&D tax credits can help you take bigger risks. Even if this attempt doesn’t pay off, it might spark another idea or lead you down a previously unexplored path.

By viewing failure not just as a cost, it becomes possible to view it as a point situated along a longer timeline. You’ve failed now, but armed with new knowledge, you can pick up where you left off and apply it in your next iteration or in a whole new project (that could be eligible for R&D tax credits as well).

We often find that our clients claim year-on-year.  Innovation begets more innovation. As you invest and reinvest in R&D, the dynamics and mindsets in your company will change too. Who knows what the possibilities might be?

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Failed R&D is R&D

Speak to ForrestBrown today about any ambitious projects you’re planning or have undertaken over the past two years. You could be eligible for a Corporation Tax reduction or cash credit.