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Reviewed by Alec Griffiths, IP Manager | 02 May 2024


What is baseline in an R&D tax relief claim?

To demonstrate R&D for tax purposes a company needs to demonstrate a scientific or technological advance to HMRC. It is important to realise that this isn’t just an advance in that company’s own knowledge or capability. Instead, this is an advance in the overall knowledge or capability in a field of science or technology.

Establishing a baseline defines what knowledge, state of art, and known solutions were publicly known at the start of any R&D project.

Common mistakes in evidencing a baseline for HMRC

The first thing to say is that HMRC doesn’t want to see a sales pitch, a list of buzzwords, or a good PR story. The language should reflect the scientific and technological subject matter. It can sometimes be easier to write a narrative that tells the client’s story, but if this doesn’t help HMRC answer their questions it is surplus to requirements.

Furthermore, many businesses assume that because they have been in their industry for a long time that they know what everyone else knows. But often products and technologies never make it to market, so effectively remain “hidden”. Competitors may have already carried out the R&D, even if they don’t currently sell the resulting innovative product or service.

Can patents be used to establish a baseline for HMRC?

It can be a challenge to evidence a baseline but demonstrating what patents existed at the start of the project can be a useful reference point. Analysing the patent landscape with a snapshot of the patent situation for a specific technology that can help answer the baseline question for HMRC.

Looking at patents can also help form the technical description to answer HMRC’s questions – knowing what other companies have done, not done and how that has been described can be useful to create the justification for your R&D. Patents inherently carry information on the challenge that was being overcome and the pathways that were followed to achieve results.

Is a Google search enough to establish a baseline?

HMRC do ask about a Google search, to see what is already out there. It can be a good start, but it might not be enough to demonstrate exhaustive proof of what is already known in the industry.

Although patents are regarded as publicly available, they do represent a bigger challenge to navigate. Even if you’ve identified the relevant patents, they can require an element of interpretation to understand how they are relevant (or not) to the R&D baseline for your R&D.

A patent search also provides intelligence with other commercial and strategic benefits. It’s a useful asset and with that information a business is better equipped for R&D projects and claims in the future.

Using patents to establish the R&D baseline- a client example

Take, for example, a company who makes chocolate truffles. They have a challenge that they want to extend the shelf life of their truffles but also want to maintain the mouthfeel and texture of their chocolate.

A search demonstrates that there is a patent for the process to stabilise the chocolate for a greater shelf life, however, because it involves freezing it alters the texture of the product. So our company can use that patent, and build on that technical narrative, to demonstrate that there is an issue in the industry and that they have come up with a new solution that wasn’t previously available to the industry.

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