The baseline of your R&D Tax Credit claim

19 July 2022

The baseline helps companies to prove that they are producing something new and innovative. 

advice : Tax and Tech

There are many existing nuances which are difficult to navigate when applying to R&D Tax Credits. One of the major difficulties is to demonstrate that your R&D project is a new and innovative development.

You might often find yourself in trouble when trying to assess if your business meets HMRC criteria. Luckily, the baseline can help you out!

What is the baseline? 

Whilst it’s difficult to define the baseline, based on HMRC’s R&D tax relief conditions, the baseline in R&D activity is ‘the baseline in technology that any advance sought is being measured against’. To simplify it, the baseline is the current state of your product/service/solution in the industry. 

Example: The current laptop’s battery lives are 10 hours. Your company is looking to expand it to 22. In this case, the baseline is 10 and the advance is 22 (12 hours increase).

HMRC also adds: ‘It is the underlying technology in which an advance is made rather than the commercial output or outcome’. This means that the advance you are seeking is beneficial to the whole industry to be considered R&D work.

How to establish the baseline?

The baseline is the key when claiming R&D Tax Credits as it helps companies to prove that they are producing something new and innovative. 

When establishing your baseline, first of all, you will need to research your product or service and the industry. The good news is that most of the Founders have done that already – competitors & industry analysis are involved in decision-making before investing money in R&D work. Then, you will need to demonstrate that your solution is valuable to the industry as a whole, not just your company.

However, R&D Tax Credit claims are complex. We advise you to reach out to a professional who will be able to advise and guide you as each case is different and will require a different approach. Our team has extensive experience and would be delighted to have an initial chat with you and submit the claim on your behalf.

Nothing on this page is intended to be or should be construed or taken as accountancy, investment, tax or any other kind of advice. We recommend individuals and companies seek professional advice on their circumstances and matters.