R&D Tax Credits for Utility Companies

R&D Tax Credits for Utility Companies

Background

Often driven by regulatory requirements, utility companies as a whole are undertaking large numbers of Software Development and electrical engineering projects that qualify for R&D Tax Credits.
We have found that these projects can be anything from developing new hardware and devices (to support their customers and back-end operations) to the integration of software systems, using new and untested techniques.

Eligibility Criteria

Main article: Eligibility Criteria
The qualifying criteria for a utilities R&D Tax Credits project are the same as those for other industries. Please see the Eligibility Guidelines for full details, but in summary, a project must seek to make an Advance in Science or Technology and in doing so 'attempt' to overcome associated Scientific or Technological Uncertainty.

Technological Advance in Utilities

In the case of utilities, we are generally looking for a Technological Advance, rather than a Scientific Advance. It is essential that 'the Advance' is indeed an Advance in Technology, rather than an Advance using Technology. Often, depending upon the description of a project, it can be made to sound like either (if it is indeed a project eligible for R&D Tax Credits). Articulating what was new (or appreciably improved) Technologically within a Utilities claim is crucial to a successful outcome.
An example of this would be in a project that is concerned with the integration of disparate systems. Configuring APIs and transforming data, may not be enough in itself to represent a Technological Advance, but where a project is seeking to create a new high-performance fault-tolerant messaging layer between two platforms, this would be more indicative of an R&D Tax Credits project.

Technological Uncertainty in Utilities

Like the Technological Advance, the Uncertainty on a 'utilities' project needs to be strictly Technological. From our experience, we have seen many forms of Technological Uncertainty on such projects, but it is essential to differentiate these from 'functional' challenges, such as:
  • How do we make a computer system process a particular type of order
Whereas a Technological Uncertainty might be:
  • In developing the new order functionality a new kind of algorithm was required, but the performance of algorithms was Y, how to make the algorithms faster without adversely affecting the security of the platform was uncertain. A further line to explain why this is the case would help confirm this as a technological uncertainty.

Smart Meter Projects

Smart meter R&D Tax Credit claims have been a hot topic with HMRC throughout 2017 and 2018. Such devices typically record consumption of energy and communicate the information to the supplier.
Typically, Smart Meter projects were/are developing capabilities that adhere to the Smets1 or Smets2 specifications. HMRC have argued at times that the work is more along the lines of configuring existing Technology (off-the-shelf) according to specific business requirements. HMRC would typically view such development as a business, or commercial Advance, rather than a Technological Advance (and corresponding Uncertainty). Lacking a Technological Advance means that this project would not be includable as R&D for Tax Purposes.
It is crucial for the Advance to be in Science or Technology NOT an Advance using Science or Technology.
It is important to remember when preparing and submitting R&D Tax Credit Claims for Smart Meter projects that they can still be as eligible as any other type of R&D project, in any other field, but there will be extra scrutiny, which means that companies will need to ensure that they are clear about the Technological rather than functional, Advance and Uncertainty.

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