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What is R&D?

R&D investment is essential if a company is to grow and compete. But what exactly are the benefits and why is it so important?

Barrie Dowsett

Chief Executive Officer


7 minute read

R&D stands for ‘research and development’. It’s an exciting concept, all about innovation and creativity. R&D investment also embraces new ideas and builds the new technologies that will shape the market of tomorrow.

Mention R&D to most people and usually the first thing they’ll think of are large pharmaceutical conglomerates and cutting edge tech outfits. But the fact is R&D occurs just about everywhere, across manufacturing, engineering, aviation, construction, food and drink, software development, green energy and many more industries besides. The list is endless.

So what is R&D, and what are the different types?

All R&D is based on people coming up with new theories, new ideas for products and new ways of doing things. Research and development is then needed to bring these ideas to life, by exploring what’s feasible and what isn’t.

There are a couple of main types of R&D. They are basic research and applied research.

How are they different?

Basic research is centred round gaining new knowledge and intelligence which businesses can use to their advantage. This new knowledge can then form the basis of any subsequent R&D project work, and to craft a more effective R&D strategy (this is something the Myriad Associates team can assist with).

Applied research is substantially more defined. It’s less general, not so much about fact finding but looking instead for something more specific. It could be about seeking out a new piece of technology for example, cutting costs, making an efficiency or improving safety. It’s this applied research that typically gives rise to a new product then being developed.

Why are companies keen to invest in R&D?

R&D investment isn’t just something that’s nice to have - it’s actually essential to a company’s survival. Businesses need to constantly grow by developing new products and services and adjusting their processes. If it doesn’t, it’ll be incredibly hard to stay ahead of the technology curve and remain competitive in their market.

Companies that don’t prioritise R&D run the very real risk of becoming obsolete and ultimately going under. Imagine living in a world where computers and games consoles are the same as they were in 1992. Or where radios haven’t changed since the ‘50s. Well the reason they don’t is simply down to companies and manufacturers investing heavily in R&D to bring bigger, better technologies to the market. This has also brought down production costs and increased efficiency, which is why more people than ever before can afford such items.

But investing in R&D activities isn’t simply about having the newest, shiniest products. It’s also about being able to evolve them so they always meet consumer needs. It also means being able to adapt to market changes quickly, and to expand into new and niche product areas as opportunities arise. There is also a strong link between R&D investment and profitability. So companies investing in R&D activities tend to be financially stronger too, which of course translates out into the wider economy.

Another big advantage of research and development is that it can attract some substantial tax relief. Since 2002, the government has rewarded companies that have chosen to invest in R&D by offering a tax credit that reduces their Corporation Tax liability. This reduction can be worth as much as 33 pence for every £1 of R&D expenditure, although how much can be claimed depends on whether a company applies using the SME scheme or RDEC. The incentive is designed to encourage UK businesses to innovate, and can easily generate tens of thousands of pounds for companies to reinvest. We’ll look at this again later.

Is an R&D department essential for businesses to innovate?

No, an R&D department isn’t essential as such - but they’re often highly beneficial. Some businesses (typically larger ones) will have an in-house team, whilst others take on ad-hoc R&D activities involving a range of different people.

R&D departments are made up of a range of specialisms with a broad mix of responsibilities. Some people will be tasked with market research and feasibility studies, whilst others will look after product development and quality control. There may well be external input too, but each company is different when it comes to R&D activities and no two are the same.

R&D Tax Credits

We’ve already mentioned this briefly but we can’t emphasis this enough: If your organisation has undertaken any R&D projects at all over the last couple of years then it could well be eligible for R&D Tax Credits towards the cost. Research and development examples can be found in the most unlikely of places, and the relief is extremely valuable too.

The government is keen for companies to grow and innovate as a way to boost economic prosperity. Claimants can receive the relief either as a reduction in their Corporation Tax liability if they made a profit, and for those that made a loss a cash lump sum is offered instead.

R&D Tax Credits are available to any UK company in any sector. From smaller outfits and start-ups to large corporations, the money generated can be used for anything from paying debts and suppliers, to director dividends and of course reinvestment in further R&D.

The scope for R&D Tax Credits claims, in terms of projects and costs, is massive. So why risk missing out?

Find out more about the scheme and how to claim on our R&D Tax Credits page.

About Myriad Associates

R&D funding and tax relief is all we do. Every day we witness first-hand what the right innovation funding can do for a business, and how it can bring even the most ambitious projects to fruition.

Our expert team will guide you through all aspect of your application, mitigating the risk of errors or under-claiming. We’re proud of our proven success rate in achieving the R&D Tax Credits and R&D Grants our clients deserve.

Call us on 0207 118 6045 or send us a message. We’re here to help.

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