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UK businesses often invest in developing new products or processes, or enhancing ones that already exist. This work typically comes under the umbrella of Research and Development (R&D).
R&D is vital in achieving future growth and staying relevant in an ever-changing marketplace. However, many companies wrongly believe that R&D is all about high tech technology firms or large pharmaceuticals. In fact, just about every successful company in any sector will dedicate a sizeable amount of resource towards developing new versions of products or improving existing designs.
To assist with the cost of research and development, the government offers a particularly popular and lucrative scheme called R&D Tax Credits. It essentially allows innovative companies to claim back a portion of their R&D expenditure either via a reduction in their Corporation Tax bill or as a cash lump sum. It can literally mean thousands of pounds back in a company’s pocket, so it’s essential not to miss out.
You can find out more about how much you could claim and how to apply on our R&D Tax Credits page.
Broadly speaking, R&D activities often come under three main categories:
Basic research is all about understanding a subject matter more deeply and building on the body of knowledge that relates to it. Typically it does not have a lot in the way of commercial or practical application.
This concerns directives which are specific and directed. It aims to determine methods to resolve a particular customer or industry requirement. Such investigations are usually focused on pre-specified commercial objectives in relation to products or processes.
Development is when research findings are utilised in the production of specific products including methods, systems and materials. Design and development of processes and prototypes are also a big part of this area. At this point however it’s important to differentiate between development and manufacturing or engineering. Development involves research that generates requisite knowledge and allows for a production process to turn these into prototypes. Engineering however involves utilisation of such research and planning to produce a commercial product.
There are a few terms in this area that are often used interchangeably. Although there is some overlap, and the meanings are similar, there’s still a substantial difference in what they represent. Here we take a look.
R&D is about furthering a company’s knowledge around a particular product or process, or how to successfully create a new one. It’s creative and systematic work, and the new knowledge gained is then used to design new materials or whole new products, as well as to alter and enhance existing ones.
This is a business or management term where there is some change in the appearance, marketing or materials of a product but nothing new has been invented. It’s basically the conversion of a particular opportunity or market need into a new or upgraded product.
Innovation means either one of two events occur, or a combination of both taking place simultaneously. This concerns either the design and marketing of a technical invention, or the exploitation of a new market opportunity. A technical invention that has no demand behind it isn’t an innovation.
Product design is actually about far more than just the superficial appearance of a product. It’s a cross functional process that encompasses technical research, market research, designing a concept, and creating a prototype, before finally building and launching it. It usually involves enhancing an existing product instead of creating a new one.
There are several key parts to note here, such as:
This is where a research team sits down to brainstorm. The discussion could begin with an understanding and itemisation of the issues faced within the company’s particular industry before being narrowed down to the prominent areas of opportunity.
Initial ideas are likely to be pretty generic and random so the team will need to sort through them to decide which have potential and which just won’t work. It’s often a good idea to consider what existing products are on the market before assessing how original new ideas really are and how effectively they can be developed.
With an idea having been researched more thoroughly, now is a good time for a market survey. Any ideas that have real potential are once again focused on, and the process begins of converting research into a marketable commodity.
Researchers are likely to work closely with product developers to work out how an idea can be turned into an actual marketable product. Increased prototype complexity is likely to occur as the process takes shape, and challenges such as sales tactics and mass production could start to become apparent.
As the product begins to take shape, the process that started off with R&D splits into the relevant areas necessary to bring the finished product to the marketplace. Regulatory aspects are examined and work begins to on meeting the criteria required to launch. The marketing team will start to develop strategies and prepare their materials whilst sales, distribution and pricing are also taken into account.
The product that began life as a research question is now ready for its biggest test - being introduced to the marketplace. Product evaluation continues, with tweaks and re-designs where required.
However, even at this stage in the process the idea could still be drastically changed or even abandoned. Its feasibility could be called into question or the research may not provide the information the company had hoped for. This is why it’s important to critically analyse each idea at every stage and not be too emotionally invested.
If you would like to speak to us about any issues raised in this article or require bespoke advice about R&D tax relief in general, Myriad Associates can help. We are a highly skilled team of UK-based accounting professionals and are experts in all areas of R&D financial planning in business.
Get in touch with us today on 020 3917 4574 or use our contact page.