Research and development, though a seemingly vague term, is an umbrella definition responsible for most, if not all of the innovation we see today. It is a directed effort on the behalf of a company to invest, research, and develop new products, services and provable concepts in order to provide something new to the marketplace.
It is through this effort that firms hope to unveil something of unique value, which they can then patent, copyright, trademark, and sell. In many cases, research and development allows a company to stay competitive and relevant. After all – markets and the needs of the consumer will change (and sometimes significantly) given enough time.
What kind of research and development is most frequent?
We may think of research and development as contributing to the landmark, milestone products we’re all aware of – such as the first iterations of Apple’s iPod or iPhone devices, yet research and development is a constant process in all industries.
From food scientists looking to develop a new crisp flavour or refining a classic beverage taste with 50% less sugar, to ergonomic office chair designers looking to add renewed adjustability to a future release – research and development may be as iterative as it can be innovative.
Is research and development profitable?
In many cases, research and development is invested in as a firm intends to maintain its position in the market and renew its offering to consumers over time. This is a vital part of internal investment, and often undertaken with the explicit knowledge that immediate profitability may not be guaranteed.
After all – it takes time, energy, enthusiasm and deep research to generate new ideas, test them, prove they work, and then infuse that into the design of a final product. Sometimes, research and development projects lead nowhere, and going back to the drawing board is necessary. Most firms accept this as a natural opportunity cost, as companies that are able to bring something new to the market may find themselves profiting for decades thanks to a simple breakthrough.
Due to the heightened capital investment requirements of structuring an internal R&D department, it tends to be companies of intermediate size and larger that invest in this effort. That said, outsourced R&D is a solution that many firms, even international brands, use to tap into local markets and access a larger company’s talent pool.
What is the R&D scheme?
Companies that can prove their R&D development activities may be able to apply for corporate tax relief from the government. After all, it’s worthwhile to the government to foster fertile ground for innovation within its shores – as this serves as a direct investment in the future.
These tax credits may allow you to reinvest more into your R&D as time passes. The government’s current aim is to expand the UK’s R&D expenditure by 2.4% in GDP by 2027.
According to HMRC, just under 83,000 businesses were funded through R&D tax credits in 2019, although this has tightened a little since the pandemic took hold. Support awarded up to then was just under 7 billion pounds, as well as a 19% increase in the cost of support.
It may be that if you’re thinking about investing in your research and development architecture, making use of such a scheme would be a wise financial decision.