While the UK R&D tax credits scheme has certainly gone through some turmoil in recent years, one of the good news stories is the recent expansion of the scheme to include mathematics. This insight explores the changes, and how they may apply to your sector.

Prior to 1 April 2023, the R&D tax relief legislation and guidance excluded research & development activities related to pure mathematics. However, gaps in the Department for Science, Innovation and Technology’s (DSIT) guidelines meant it was unclear how HMRC would distinguish between pure mathematics vs applied mathematics, creating a grey area for companies and advisors when assessing the eligibility of their R&D activities. This lack of clarity from HMRC left organisations in a wide range of industries confused about what they could claim as mathematics in their R&D tax credits.

However, from 1 April 2023, HMRC has updated the DSIT guidelines; making it clear that activities relating to pure mathematics now meet the definition of R&D and can be claimed under the R&D tax relief. This removes the ambiguity between what HMRC considers as “applied” vs “pure” mathematics and widens the scope of activities that can potentially be claimed for, including mathematical modelling and other mathematics-related activities.

What activities can be claimed and who can claim?

Companies across a wide range of sectors may be undertaking innovative work that is potentially claimable under this new guidance. These industries could include:

Financial services

Financial services organisations rely heavily on financial modelling to make informed decisions and manage risk. The continuous advances in algorithmic trading mean that items such as stocks, futures, forex, and options can now be traded with algorithms and with limited human intervention. Further, there is a growing need to analyse very large datasets in latency-sensitive environments to extract features from information, making the leveraging of novel high-performance computing capabilities necessary. The financial sector is also benefitting from advances in AI such as natural language processing, deep learning, and large language models. These technologies all have one thing in common: They need sound mathematical models and theory to properly function and deliver results as expected. The new guidance in the R&D tax credit scheme will enable financial services firms to widen the range of activities they can claim for.

Specifically, the insurance and re-insurance industry relies heavily on mathematical modelling to manage risk and set fair prices, using complex models to assess the likelihood and costs for claims. These models are crucial for reserving funds for future claims, grouping policyholders, and detecting fraud. Under the new guidance, mathematical advances and improvements in both deterministic (e.g., claims forecasting, net premium reserves) and stochastic models (e.g., Markov chain models, aggregate loss, dynamic financial analysis models) can be included in a claim thus broadening the costs pool that can be considered.

Healthcare, pharmaceutical, and life sciences

Mathematics and mathematical modelling are also essential in fields such as pharma, life sciences, and healthcare. Partial differential equations, statistics, and numerical modelling are widely used in drug research, formulation, and distribution. Some machine learning is becoming standard in drug discovery, but many businesses are trying to extend the capabilities of these algorithms or developing new search and classifier techniques to home in on unknown drug types or patient-centric treatments. In addition, we are also seeing time series analysis and forecasting being used to advance the understanding of dementia and the development of relevant medication, for example. Following this new R&D guidance, healthcare, pharma, and life sciences organisations could include these activities in their claims along with their core research and development.

When preparing a claim, organisations will need to be cautious when it comes to setting the boundary between R&D and the application of existing methods, however. HMRC has been challenging software claims with these arguments and any mathematics claim will need to follow the same approach.

Manufacturing, engineering, and design

The manufacturing industry often leverages mathematics to streamline and optimise their production processes, improving efficiencies, reducing costs, and ensuring high quality products.

For example, advances in partial differential equations can be used to better understand turbulence – leading to the design and development of more efficient aircraft components; and advancing numerical methods (e.g., finite difference, finite element, finite volume and spectral methods) can lead to significant advances in structure stability, the development of novel materials, and the design of new buildings and spaces to meet environmental requirements and regulations. These, combined with other innovative development activities, can help engineering and manufacturing companies to maximise their claims.

Many manufacturing claims will be hidden within process improvement or product improvement activities. Therefore it is likely that swathes of activity are going unclaimed for. With our support, organisations in this sector can ensure that they are getting tax relief on their new, cutting-edge innovations.

What does this mean?

For organisations whose core R&D is in pure mathematics, this new guidance now allows you to benefit from R&D tax relief. If your company is already claiming for R&D activities, seeking innovation in software or other qualifying activity, but have previously had to exclude affiliated projects or activities related to mathematics, this new guidance could allow you to expand your claim.

There will also be other eligible costs alongside these activities. They will include for costs for staff and subcontractors spending time on qualifying mathematics-based research activity, as well as any associated costs for software licences and other consumables. Furthermore, for accounting periods beginning on or after 1 April 2024, companies will be able to claim for dataset costs which could benefit companies using such datasets to test and validate these mathematical models. However, there are restrictions around claiming these costs, so it is important to assess the eligibility of these costs against the set criteria.

How we can help

We know how important innovation is in making the world a better place. And that’s why we're here to fully support you with preparing and claiming R&D tax credits, ensuring you get the cash back that you deserve.

Our specialist R&D tax team has extensive experience in preparing R&D claims for a wide range of industries. We can take time to assess the development activities being undertaken by your company, including those related to mathematics, and identify those that can now be claimed under the scheme in accordance with the new guidance.