Why is Research and Development important?

Why is Research and Development important?

For technology and software companies, research and development is important as they can be the first to market certain products or services which gives them an edge over their competitors.

Success in R&D could encourage highly skilled creative and innovative individuals to join the company.

Also bear in mind that a project does not have to be commercial to fall into the R&D bracket, a company could be looking to improve its efficiency internally. Being more efficient in turn may mean that projects for clients can be completed in a shorter timescale, benefiting costing and improving client perceptions of the company for delivering more quickly than competitors.

What are Research and Development skills?

  • Problem solving
  •  The ability to recognize when a research project is leading to a dead-end
  •  If in the IT sector – familiarity with different platforms and integrations

How does Research and Development affect a UK business?

If a company is engaging in R&D projects, to successfully claim for R&D relief, the business must be able to answer the following questions:

    • What are the scientific or technological advances being sought?
    • What are the uncertainties involved?
    • How and when were the uncertainties resolved?
    • Why was the knowledge sought not readily deducible by the competent professional?

Once it has established that it is engaging in R&D projects, the business must keep a record of who is spending time working on these projects, and log the specific costs involved.

If a company director is engaged in R&D, and is taking the tax efficient salary (£8,424 for 2019) they may consider increasing this salary to at least the personal allowance (£11,850 for 2019) so that higher company tax relief can be sought.

A business should also consider that although the enhanced tax deduction makes R&D projects attractive, there are risks to the company that the projects may ultimately fail. Those running the company should be aware that due to the inherent uncertainty of the work, if it turns out that the uncertainties cannot be overcome, where does this leave the company?

Author: Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

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