143. Examples of Research & Development (R&D) for tax purposes

R&D for tax purposes comprises activities that use science or technology to overcome a clear and demonstrable limitation, or ‘uncertainty’, in a particular field.

The end result could be new products, new systems, new devices, new processes and knowledge – or improving/building on what already exists.

Examples of R&D

R&D for tax purposes is purposefully broad so it can capture a range of different activities:

  • Basic research: attempting to advance scientific knowledge without a specific application – for example software integration, energy storage, or sustainable packaging.

  • Applied research: advancing scientific knowledge with practical application in mind, such as plant-based meat alternatives, AI in customer service, or a new inventory management system for retail.

  • Experimental development: seeking to improve an existing product/process, such as telemedicine, eCommerce checkout system, or personalised manufacturing.

What is NOT R&D

It is equally important to understand what is NOT classed as R&D for tax purposes.

  • Routine maintenance: any standard processes that form part of business-as-usual, such as website updates, security audits, or upgrading IT infrastructure.

  • Aesthetic improvements: any work to improve the cosmetic qualities of a product/service, such as new product colours/finishes, marketing/branding, or design studies.

  • Fixed and wider costs: any asset that continues to deliver value to the business, or costs that are not directly attributable to the R&D project.

Below we have a look at a few sectors to demonstrate the diversity of R&D and what it could look like in your business:

Examples of R&D in software & tech

Software developers and specialists all over the UK continue to invest their resources into developing and improving IT solutions, creating the most innovative, economically viable services, products and methodology to ease our life. 

ICT permeates a number of industries and the applications can range from social and domestic use to commercial, industrial and even military. Some more common examples are outlined below:

Blockchain – the democratisation and validation of data is one of the numerous applications of blockchain technology allowing immutable and decentralised control of the data.

The internet of things (IOT)
This is perhaps the most pervasive technological advance in the last few years, with the emergence of smart assistants and interconnected domestic devices.

Providing security for users has always been a large part of software development and with people growing more concerned with their personal data, the need to build more advanced security measures will continue to push the software sector. Development into new encryption techniques or secure communication methods to meet clients’ needs will continue to be a major area in the software sector open to new R&D.

Examples of R&D in printing

As of 2019, the UK was the world’s fifth-largest producer of printed products, with around 8,000 companies operating within the printing industry. We have seen a number of significant developments in recent years within the printing sector; in particular, R&D in the printing industry has helped enhance the quality of products in the market, reduce costs, improve operational or product efficiencies, and enabled the industry to become more environmentally friendly.

Examples of R&D in the printing industry include:

  • Development of new inks that can be printed with new printers / on emergent substrates
  • Development of inks that are cheaper / environmentally friendlier / more efficient
  • Development of new substrates to be printed on
  • Enhancing the printer set-up to provide additional capability or decrease set-time

Examples of R&D in finance (fintech) & insurance (insuretech)

The ability of companies within this sector to gather and correctly analyse data and predict future trends is what has allowed the UK’s financial services sector to become one of the largest in the world. This need for constant innovation will naturally push businesses into R&D and some examples are given below.

AI has already been used to help insurance providers and credit lenders make smarter decisions and accurately assess the risk in particular decisions. AI has also assisted stockbrokers by performing real-time analysis of market trends, as AI can analyse massive amounts of data far quicker than any trained professional.

Telematic Devices and data collection
Many insurance companies have begun using technologies such as GPS to collect data on their clients, to better insure them by fully understanding their driving habits. Similar technologies/ systems are continuously being developed in the insurance sector alongside methods to work with and analyse the data collected.

Cloud-based data storage/collection
In recent years, many industries have moved to cloud-based storage systems to manage their data. Efficient data collection, storage and management are vital in the finance and insurance industries. However, the rise of cloud-based technologies has also introduced a lot of technical challenges and uncertainties that companies must overcome through R&D.

Making the most of your claim

R&D is a form of self-assessment. You do not need to work with an R&D tax adviser to submit a claim, but doing so can hugely increase the robustness of your submission and ensure you are getting the full amount you are entitled to.

R&D claim preparation is a technically demanding process and, as specialists, advisers are key in helping businesses to quantify, to collate and to maximise R&D claims.

Update Sept 23: Especially as we now know there are 2 key process changes to be aware of.  The first is the requirement to provide advance notification of your claim. The second is completion of an Additional Information Form. Talk to your specialist for more details.

At Tectona, we see the best service that we can give our clients in this area is to introduce them to someone we know will give them support where they need it most. We have partnered with Kene Partners who have the right team and the right expertise to deliver the right solution, on time, every time.

Kene Partners have the technical knowledge, expertise and key relationships with HMRC to make sure you receive the full amount of benefit you are entitled to.

The benefit of this partnering relationship is that you can access a fast-track assessment of your potential to claim R&D. What could your claim be worth?

To book your free consultation, visit Kene Partners.

About Tectona

Tectona Partnership helps business owners sleep at night by embedding one of our 17 commercially minded finance directors in your management team.

Very often, a part time solution is the most effective solution.

We make sure you have the necessary management information and strategic insight to make informed decisions and reduce risk; and we will absolutely tell you what you need to know, when you need to know it.

Posted in Tectona.