In fact, before looking at the question in the title, how about: why do we need to know?

Well the reason is that a couple of years ago, someone at HMRC decided that an otherwise innocent sentence in the DTI (as it was originally, now BIS) Guidelines on the meaning of R&D would enable HMRC to disqualify a whole raft of activity that had previously been accepted as qualifying.  The sentence in question is Paragraph 28(c) of the 2004 version of the Guidelines (the current version) which states that: “the production and distribution of goods and services” are not R&D. (Note: apart from the quoted words, this is a heavy paraphrasing of the text.  It is arguable that this is not the correct meaning of the full words but that is for another post).  All of a sudden, activities which had previously been accepted as R&D, such as pre-production trials, were being rejected as “production”.

A lot of representations were made by various advisers that this interpretation was, at best, too restrictive.  The arguments included an analysis of the original wording of the Guidelines (they were revised in 2004 but with a clear statement that the overall meaning was unchanged) and reference back to original policy. All to no avail.

Eventually, late last year at a meeting of the R&D Consultative Committee, we were told that HMRC was reconsidering its position on “production”.  Now a draft of revised guidance (for inclusion in HMRC’s Corporate Intangibles Research & Development Manual – ‘CIRD’) has been posted on the HMRC website for public comment.

I have a few minor concerns about the detailed contents of the draft and will be feeding these back to HMRC shortly.  However, overall this is a vast improvement on the previous guidance and is very much to be welcomed.  I will post my comments via this Blog in due course.