AI Projects: What qualifies?

R&D tax relief can be vital for AI projects, offering huge benefits in R&D tax credits for AI. If your business is working with on AI solutions, you could be entitled to a tax cut or cash payment to offset your expenditure and fund future work.

In order to benefit from qualifying AI development costs it is important to know the qualifying criteria and which projects are relevant. Your company needs to demonstrate that it is aiming to make an advance in science or technology and to resolve scientific or technological uncertainty in its field. In the context of AI, R&D tax relief for data science means creating something new that pushes the boundaries of what’s currently possible.

 So what AI project activities qualify in practice?

Examples:

·       Developing a new machine learning (ML) algorithm – AI machine learning R&D tax relief is available when a project tackles a problem or creates an advancement.

·       Developing ‘sovereign’ AI capabilities – building new foundation models rather than using off-the-shelf API’s.

·       Designing an advanced method of data processing to improve model efficiency – This may qualify when the work involves creating a solution that goes beyond established techniques.

·       Inventing a unique approach to AI-driven automation that goes beyond existing tools – Eligible for R&D tax credits for AI where the project overcomes scientific or technological uncertainty in AI, or develops new capabilities and advances in new technology.

·       Engineering ways to merge legacy systems with new AI automation – often overcoming system uncertainties.

 AI integration projects will invariably need a significant investment of effort to successfully bridge the gap between new AI and legacy systems. Most projects will need to undertake deep data analysis, bespoke development and rigorous systematic testing to ensure that the new technology actually works as hoped. For the integration to work, AI automation requires extensive engineering to overcome capability challenges, ensuring that data can flow between old and new architectures without any issues. Some projects will seek to deliver physical automation, introducing robots that engineers must design, prototype and test. This is complex work that requires genuine scientific or technological advancement which, is precisely why these activities often qualify for R&D tax credits.

Once the eligibility criteria has been established, certain costs may qualify for R&D tax relief, such as:

·       Staff

·       Subcontractors and freelancers

·       Materials and consumables (incl. prototypes)

·       Software licences

·       Certain data and cloud costs

 ThirdRock tax technicians work to help identify AI R&D projects and write up project descriptions to be filed with HMRC in a way that HMRC understands. This ensures that your R&D tax claim is robust and compliant.