New R&D regulations

With updates coming into force on 31 March 2023, view our latest guidance

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The ‘new’ Research and Development (Prescribed Activities) Regulations came into force on 31 March 2023 and they will apply (for corporation tax purposes) to accounting periods beginning after 31 March 2023. For the purposes of income tax and capital gains tax, they apply in relation to the tax year 2023-24 and subsequent tax years.

Read the instrument itself (Statutory Instrument 293 of 2023).

Read the updated guidelines.

In relation to the updated guidelines:

  • the accountancy references in Paragraph 1 have been updated and future proofed
  • paragraph 15 has been replaced with paragraphs 15A and 15B to define ‘science’ for the purposes of these guidelines and to reflect the change in the treatment of mathematics which was announced last year respectively.
  • footnotes in the guidelines are now at the very bottom of the document (note that the statutory reference for oil and gas exploration in footnote 1 has been updated).

A brief introduction and summary of key points to the guidelines, which should not be used as a substitute for the guidelines, is as follows. Terms shown in bold have been defined in the guidelines.

1. R&D takes place when a project seeks to achieve an advance in science or technology.

a) A project consists of the activities conducted to a method or plan in order to achieve that advance in science or technology.

b) An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology. The advance can have tangible (ie improved product or processes) or intangible (ie new knowledge or cost improvements) consequences and it is not necessary for the advance to be realised (ie it is sufficient that an advance was attempted). It is possible for an advance in overall knowledge or capability to be made where the knowledge or capability already exists but the details are not publicly available.

c) A project which makes an appreciable improvement to an existing process, product, etc. can be R&D provided the changes made are more than a minor or routine upgrading and do more than bring the company in line with overall knowledge or capability in science or technology.

2. Activities which directly contribute to achieving the advance in science or technology through the resolution of scientific or technological uncertainty are R&D.

a) Activities which can directly contribute to R&D include:

i) the creation or adaptation of software, materials or equipment

ii) planning activities (including planning and management of the work but not researching gaps in the market or examining a project's financial, marketing or legal aspects), and

iii) design testing and analysis.

b) Activities which do not directly contribute to R&D include:

i) the commercial and financial steps necessary for innovation and the development and marketing of the product, etc.

ii) the production and distribution of goods and services (with the exception of the design construction and testing of prototypes which generally falls within the scope of R&D), and

iii) administration and supporting services (ie storage, cleaning, repairs, etc.)

(an activity which does not directly contribute to R&D could still count as R&D if it is a qualifying indirect activity; see below).

c) Scientific or technological uncertainty exists when knowledge of whether something is possible or feasible is not really available and cannot be easily deduced by a competent professional.

3. Certain qualifying indirect activities related to the project are also R&D. These include:

a) indirect supporting activities (eg administration and security) undertaken for R&D

b) ancillary activities essential to the undertaking of R&D (eg maintaining equipment and leasing laboratories)

c) research and feasibility studies.

4. R&D begins when work to resolve the scientific or technological uncertainty starts and ends when the uncertainty is resolved or the work to resolve it ceases.

The changes mean that record-keeping for claims made under these schemes will be ever more vital and referrals to R&D experts should be made where appropriate.

Further resources

Read our practical guide to the changes to R&D tax reliefs from 1 April 2023. 

Read our summary of the key changes to R&D in the Autumn Statement 2022.