Research and Development (R&D) concerns innovative activities undertaken to develop new (or improve existing) services or products. Most often R&D occurs as the first stage to create (or improve) a product or service.
Although all companies that are undertaking R&D type activities have completely different processes, there are generally two models. One in which companies undertake blue sky R&D with the premise that useful information for a product may come out of the research, or where the company has a specific business problem and so they undertake R&D with the specific intent of overcoming the problem.
Every year, the proportion of companies undertaking R&D activities in the UK increases, which is a testament to changing business environments and the need for companies to gain a competitive edge through the undertaking of R&D (and increasingly, in many cases develop the new products they require to survive). Research has confirmed this and shown that companies with persistent R&D ongoings outperform those with an irregular (or no) R&D investment.
The UK government has issued three R&D Tax Credit regimes to support companies undertaking certain types of project in science and technology. The regimes each have set criteria, which depend upon the size of your company, the nature of the costs and how they were accounted for. The benefit of an R&D Tax Credit claims can be up to 26% of the qualifying expenditure.
Historically it was pure science and technology firms that were undertaking R&D activities, but today almost every industry is undertaking some form of R&D, from Software Development to Life Sciences. Industries that you may not think are undertaking R&D are actually doing so and making good quality claims for R&D Tax Credits. For example, we have recently found projects that qualify for R&D Tax credits in a small estate agency, an independent solicitor firm and a small used car salesroom.
Often it can be the case that R&D is very difficult to manage since the researchers (engineers or developers) often do not know in advance how to accomplish the desired result. This means that companies spending more on R&D does not mean that they will necessarily get more, or a faster delivery (although it does often help)
Research can be a tricky area to finance because the development of an invention and its realisation often carries uncertainty around scientific, technological, business and commercial concerns.
Expenditure on Research and Development in the UK
The office of national statistics reported that R&D expenditure has expanded to £33.1 billion in 2016. This is an increase of £33.1 billion relative to 2015. However, this only represents 1.67% of the UK GDP, which is below the European Unions estimate of 2.03%.
This increase is mostly driven by the business sector that itself grew by £1.2 billion.