Why has the Government Handed out Billions in R&D Tax Credits?

Innovation growth

The UK Government introduced research and development tax credits in the year 2000. Since then British businesses have benefitted to the tune of more than £11.4 billion.

Successive Governments have demonstrated their commitment to encouraging business innovation through R&D tax credits, as indicated by an average 18% year-on-year increase in claims by SMEs (small and medium-sized enterprises) between 2000 and 2013/15.

Even with the financial crash of 2008 and the period of austerity and belt-tightening that has followed, the Government has continued to reward businesses that invest in innovation.

With the nation’s public finances stretched and the Government committed to reducing the budget deficit, why are billions of pounds still being spent on research and development credit?

The simple answer is that research and development drives innovation, and innovation provides economic growth, goods, and services.

Any business that develops a successful innovation is likely to reap the rewards, but these benefits spill over to the advantage of society as a whole.

What has innovation ever given for us?

Longer Lives: The average life expectancy in Great Britain at the end of the nineteenth century was around 47 years for men and 50 for women. A little over a century later and those figures have climbed to about 79 and 83 respectively.

Medical innovations1 mean that we now live in a country where deaths from infectious diseases such as tuberculosis are rare, antibiotics prevent minor injuries from proving fatal, and infant mortality has been cut from more than one-in-ten in 1900 to 0.38% today.

Economic Growth: Numerous studies have linked innovation with driving an increase in GDP.2

World GDP per capita has skyrocketed since the industrial revolution. Innovations such as the production line mean that it has been possible to accomplish this hand-in-hand with improved working conditions and reduced working hours.

Quality of Life: On almost any meaningful measure that can be conceived of, life is better for the average person today than it was one-hundred or two-hundred years ago.

Thousands of innovative products have been developed that have revolutionised the ways we live, work, communicate, travel, and spend our leisure time.

Innovation has driven a significant improvement in quality of life, and an ongoing investment in research and development should help to ensure this trend continues.

Jobs: Innovation can be seen as something of a double-edged sword when it comes to jobs. New technologies have wiped out jobs and industries in the past; they will do so again in the future.

Innovations are inherently destructive, but it is a form of creative destruction. Studies have shown that new inventions have generated far more jobs3 than they have destroyed.

Fifty years ago many of the jobs that exist now would have been impossible to even conceive of. In another fifty years from now innovations will have opened up new markets and jobs that nobody has yet imagined.

Innovation for the future.

Mankind has made astonishing progress within the space of just a few generations, but it may well be that the most difficult challenges are yet to be overcome.

Innovation will play a vital role as we look to take advantage of clean, renewable energy sources, provide enough food for a growing population, tackle poverty at home and abroad, and combat the growing threat posed by climate change.

It would be unrealistic to expect new technologies to solve all of our problems, but science is the key that will help to unlock a lot of the doors that stand in our way.

How innovative is the United Kingdom?

Great Britain has been a world leader in innovation since 1760 when it gave birth to the industrial revolution that transformed the world. Some experts believe we are now seeing the beginnings of a new industrial revolution4, a revolution that will see advanced technologies blur the lines between the physical and digital world.

If Britain is to remain a successful, prosperous country, then it is vital that we strive to be at the forefront of innovation and continue to push against the boundaries of what is possible.

Fortunately, Britain’s businesses and research sectors are recognised as being amongst the most innovative in the world.

The Global Innovation Index ranks the nations of the world for their success in innovation, as defined by 79 different indicators. In the most recent report, released in 2015, the United Kingdom places a highly impressive second out of the 141 nations assessed.

Links

1 – http://abcnews.go.com/Health/TenWays/story?id=3605442&page=1

2 – http://www.oecd.org/science/inno/39374789.pdf

3 – https://www.theguardian.com/business/2015/aug/17/technology-created-more-jobs-than-destroyed-140-years-data-census

4 – https://www.theguardian.com/business/economics-blog/2016/jan/24/4th-industrial-revolution-brings-promise-and-peril-for-humanity-technology-davos

5 – https://www.globalinnovationindex.org/content/page/GII-Home

Moore’s Law and Big Bang Disruption

bigbang

In 1964 the CDC 6600 was the world’s most powerful supercomputer. Three times as fast as its closest rival, the CDC 6600 was considered a bargain at a price of $5 million, filled a good sized room, and was capable of executing a then-impressive 3 million floating point operations per second (FLOPS).

The subsequent explosion in processing power means that the most basic of today’s desktop computers are capable of several billion operations per second.

More than a hundred CDC 6600s were built, but even their combined computing power wouldn’t have come close to matching a cheap modern mobile phone.

Moore’s Law

In the decades since the launch of the CDC 6600 computers have become smaller, vastly more powerful, and affordable enough to be accessible to everybody. It’s a remarkable trend that was foreseen by Gordon Moore, the co-founder of Intel, in 1965.

Moore noted that the number of transistors per square inch on integrated circuits had doubled every year since their invention. This meant that computer chips were becoming twice as powerful every year.

While Moore initially believed this exponential increase in computing power might last for something in the region of five to ten years, it is only now that the end1 appears to be in sight.

The Computer Chip Revolution

Thomas J Watson of IBM reportedly claimed that there would be a worldwide market for about five computers. Since it is estimated there are now well in excess of one billion computers in existence, it was not one of history’s most insightful predictions.

It has become increasingly difficult to even distinguish between what is and what isn’t a computer. As computer chips have conformed to Moore’s law by becoming smaller, cheaper, and more powerful, it has become economically viable to include them in a dizzying array of products.

Everything from toasters, to automobiles, greeting cards, and even shoes and fishing reels2 have been enhanced with digital technology.

Disruptive Technology

In 1997 Clayton Christensen coined the term disruptive innovation3, referring to an emerging technology that disrupts or entirely displaces an established one.

Christensen described these disruptive technologies as initially inferior to existing products. For example, the first liquid-crystal-display (LCD) televisions commanded only a niche market because their picture quality was markedly inferior to cathode ray technology (CRT) screens. In 2007, almost twenty years after their commercial launch, sales of LCD screens surpassed CRT for the first time. LCD televisions and monitors had retained their advantages of being compact and lightweight, while improvements in the technology gradually closed the gap in quality.

Clayton Christensen’s ideas remain hugely influential, but it has been argued that the exponential increase in computing power has rendered this picture of slowly emerging disruptive technology as largely obsolete.

Big Bang Disruption

In 2014 Larry Downes and Paul Nunes introduced the world to the concept of Big Bang Disruption4. Big Bang Disrupters behave differently to the disrupters described by Christensen. They don’t emerge on the edges of the market, they explode into being fully-formed, almost as if out of nowhere.

Big Bang Disruptors are able to compete with established products right from their release, offering superior features, more customisation, and all of this is often made available to the customer at a better price.

Thanks to more than half a century of exponentially increasing computing power, the invention of the internet, and the advent of cloud computing, it’s become possible for innovators to combine existing technologies to launch new products that are immediately superior to those they threaten to displace.

Google Maps

Downes and Nunes put forward Google Maps as a prime example of a Big Bang Disruptor. When Google announced that it would offer GPS directions on android phones in 2009, shares in TomTom5 and other navigation service providers plummeted by 20% overnight.

Google Maps offered all of the features available on a traditional satellite navigation device, with the added advantage that it could be accessed through a smartphone. TomTom would be fighting a losing battle to match the functionality and convenience of Google Maps, but with Google Maps available for free they had already lost the war on price.

TomTom became a victim of Big Bang Disruption, and they took the hit from a company that hadn’t even traditionally been a competitor.

Surviving Big Bang Disruption

Under Clayton Christensen’s model of disruptive technology, established firms had enough time to spot the disruption coming and react accordingly. The rapid march of technology means that Big Bang Disruptors such as Google Maps are far more explosive and difficult to foresee.

The very nature of Big Bang Disruption means that it’s impossible for organisations to completely shield themselves against its shockwaves. The best defence is an understanding of the new reality of disruptive technology and an ability to innovate and diversify.

TomTom could have been destroyed by Google, but the company proved to be agile enough to survive. While TomTom no longer dominates the GPS market, the company has branched out6 into wearable technology and positioned itself to take advantage of the forthcoming driverless car revolution.

 

Links:

1 – http://www.economist.com/technology-quarterly/2016-03-12/after-moores-law

2 – http://www.statesman.com/news/business/microchips-are-showing-up-in-low-tech-products-1/nRWNz/

3 – http://www.claytonchristensen.com/key-concepts/

4 – https://www.amazon.co.uk/Big-Bang-Disruption-Business-Innovation/dp/0241003520

5 – http://www.businessinsider.com/googles-free-gps-service-crushes-garmin-tomtom-shares-2009-10?IR=T

6 – http://www.afr.com/technology/google-maps-couldnt-kill-tomtom-now-it-is-poised-for-a-driverless-future-20160122-gmbtzu

The Innovator’s Dilemma

Disruptive innovation

In business there’s no such thing as too big to fail. Products have a lifespan, trends come and go, and new inventions can pull the rug out from underneath successful companies sending their profits into freefall and placing their very survival in question.

The fall of a corporate giant can come as a shock, particularly if it has been an established household name for decades. However, the downfall of such companies has often followed a pattern. It’s a pattern that Clayton Christensen attempted to lay bare in his famous 1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.1

Disruptive Technology

Christensen draws a distinction between sustaining and disruptive technology2. Most established firms tend to focus on the former. Rather than looking to develop a radically new technology, they will usually concentrate on making incremental improvements to their existing products.

Disruptive technologies are different. In their infancy they have a limited market, inferior performance to existing technology, and are unlikely to have any great initial mass market appeal. Established companies often fail to invest in these disruptive technologies and in the short-term it might seem to be an entirely sensible decision. However, while a company might appear to be doing the right thing by investing in its core products and satisfying the needs of existing customers, its entire market could be destroyed when a disruptive technology matures and bursts into the mainstream.

Disruptive Technology in Action

Examples of disruptive technology aren’t difficult to find. They’re the reason we make telephone calls rather than send telegrams, why we travel in cars rather than by horse and cart, and why almost nobody uses video cassettes anymore.

It’s in the nature of disruptive technology to shake up the existing order of things. If a company fails to properly anticipate the threat, the consequences can be catastrophic. The downfall of the film and camera giant Kodak is too recent to feature in Clayton Christensen’s book, but it offers an excellent picture of disruptive technology in action.

The name Kodak was synonymous with photography, and the company commanded a huge market share in sales of film and cameras. While Kodak was fully aware of the emergence of digital cameras, they didn’t recognise them as a significant threat to their core business. The first digital cameras3 were clunky, produced poor quality photos, and the images had to be saved to a separate device rather than to the camera itself.

Kodak4 dismissed the digital devices as little more than a toy that would hold little to no appeal for their existing customers. They didn’t believe that digital could ever be a replacement for film. In choosing to focus on the existing needs of their current customers and underestimating the potential of digital camera technology, Kodak fell prey to Christensen’s innovator’s dilemma.

As improving technology allowed digital cameras to break out into the mainstream, Kodak’s market value collapsed. In 1996 Kodak was the fifth most valuable brand in the world; by 2012 the company had filed for bankruptcy and was fighting a desperate struggle for survival.

Resolving the innovator’s dilemma

Kodak couldn’t claim to have been entirely blindsided by the emergence of digital cameras. The first such device was even invented by a Kodak engineer in 1975, but the company’s executives showed little interest in it and failed to recognise its potential.

So what should Kodak have done? In order to remain successful, they might have been well advised to stop paying quite so much attention to what their customers thought they wanted. As Henry Ford is supposed to have once said: “If I’d asked my customers what they wanted, they’d have asked for a faster horse.”

The most innovative organisations don’t wait for disruptive technology to emerge elsewhere, they actively attempt to disrupt themselves. In 2012 Facebook employees were given a copy of the “Little Red Book5” which explains the company’s culture and history. It says: “If we don’t create the thing that kills Facebook, someone else will.”

It’s not always easy for an organisation to attempt to disrupt itself. A firm’s established culture and processes cannot always be readily adapted to the development of a radical new technology, particularly one that has the potential to destroy the core business.

Christensen did put forward a solution: “Create a separate subsidiary; free it to attack the parent.”

However, not everybody is convinced that this is the best solution to the problem, and it has been argued that the nature of disruptive technology has already fundamentally changed.

 

Links

1 – https://www.amazon.co.uk/Innovators-Dilemma-Technologies-Management-Innovation/dp/142219602X

2 – http://www.investopedia.com/terms/d/disruptive-technology.asp

3 – http://www.popphoto.com/gear/2013/10/30-most-important-digital-cameras

4 – http://www.forbes.com/sites/daviddisalvo/2011/10/02/what-i-saw-as-kodak-crumbled/#2590e0a720f5

5 – http://uk.businessinsider.com/inside-facebooks-little-red-book-2015-5

 

 

 

 

 

 

 

 

 

 

Exploring the Adjacent Possible

In 1926 Nikola Tesla made an astonishing prediction. Speaking with Colliers magazine, the inventor foresaw a future1 where people would be able to communicate with each other instantaneously and irrespective of distance. A person would be able to see and hear another individual on the other side of the planet as if they were standing face-to-face. All of this would be made possible through a device that might be small in enough to fit in a man’s vest pocket.

Tesla had effectively imagined a modern smartphone. It was a remarkable conceptual leap, but even an individual as brilliant Nikola Tesla couldn’t begin to design the device he had described. The technologies that would eventually make smartphones a possibility, such as silicon transistors, microchips, and rechargeable batteries, had themselves not yet been invented. Tesla’s idea was so far ahead of its time that it could not be made into a physical reality during his lifetime. The smartphone would be a product of the digital age, first showcased2 by IBM in 1992.

While a brilliant individual such as Tesla can occasionally conceive of an idea that is well ahead of its time, sometimes it seems that an idea’s time has very much come. This can be seen through a curious phenomenon in the history of science and innovation whereby the same invention or idea is being explored more or less simultaneously by two or more individuals.

Great Minds Think Alike!

Alexander Graham Bell is usually remembered as the inventor of the telephone, but there are at least two other serious claimants. One of these, Antonio Meucci, was an inventor from Florence, too impoverished to file a patent. The third contender, Elisha Gray, did apply for a patent but lost out to Bell by a matter of hours.

The question of which of these men was truly the first to invent the telephone is still a matter of some controversy3, and the waters are muddied still further by claims that Bell may have stolen his design. However, this example of simultaneous invention was by no means an isolated incident. The radio, steam engine, electrical telegraph, vacuum tube, jet engine, and a good deal else besides, were all independently invented, usually with the inventors concerned completely unaware that anybody else was following a similar line of thought.

In 1922 William Ogburn and Dorothy Thomas published an essay4 in which they identified 148 instances of these simultaneous inventions, or “multiples” as they are also known. With multiples occurring with remarkable frequency throughout history, it seems that some force other than mere chance must be at play. A fascinating explanation, as suggested by Steven Johnson5 in his book Where Good Ideas Come From: The Natural History of Innovation, is that of the ‘adjacent possible’.

One Thing Leads to Anotherf Johnson saw that the theory could be applied just as effectively to scientific progress, and he described it as follows:

“The adjacent possible is a kind of shadow future, hovering on the edges of the present state of things, a map of all the ways in which the present can reinvent itself.”

Each invention and discovery opens up the way for new possibilities which had not existed before. To take just one of countless possible examples, the invention of vulcanised rubber (another simultaneous invention), placed the invention of the rubber tyre, amongst other things, within the adjacent possible. Rubber tyres in turn helped to open the way to the invention of bicycles and the motor car. While there are occasional dead ends, such as the insanely dangerous rocket-powered aircraft deployed by Germany during World War Two, successful inventions and discoveries almost invariably bring yet more innovations within the realms of the adjacent possible.

Johnson uses the analogy of exploring a vast building to help explain the concept. Each room within Johnson’s building contains several doors, and each of these doors represents another invention or discovery. As a door is unlocked and walked through, it too will lead into yet another room containing yet more doors and still more possibilities. As new inventions and discoveries open up new realms in the adjacent possible, inventors, engineers, and scientists begin to explore that space. It’s not surprising that they frequently find themselves thinking along similar lines.

The lesson for innovators is that there is no time to lose. No matter how brilliant or original an idea might appear to be, history suggests that the possibility it might just have occurred to somebody else cannot be easily dismissed.

 

1-http://www.tfcbooks.com/tesla/1926-01-30.htm

2-http://time.com/3137005/first-smartphone-ibm-simon/

3-http://oldphone.net/who-invented-the-worlds-first-telephone/

4-https://archive.org/stream/jstor-2142320/2142320_djvu.txt

5-http://www.ted.com/talks/steven_johnson_where_good_ideas_come_from?language=en

6 – https://www.edge.org/conversation/stuart_a_kauffman-the-adjacent-possible

 

 

 

Innovation Matters

block buster netflix innovation

Big business spends big money on innovation. They do so with good reason. The world is changing, and at a faster rate than ever before, so any organisation that fails to keep pace risks becoming obsolete. History has shown that even the biggest corporations can fail, but organisations that place a high value on innovation will always be best placed to adapt and thrive.

At first glance it might seem as though established companies with big research and development budgets would enjoy every advantage over a startup with limited capital. However, businesses, like people, can become set in their ways. While startups tend to embrace innovation and risk in order to succeed, for established organisations there can be a temptation to resist change and rely on tried and tested methods. The danger is that in a rapidly changing world these methods probably won’t work forever.

Despite the disparity in resources, it’s quite possible for an innovative startup on a limited budget to topple an established, but complacent, giant. The case of Netflix and Blockbuster is just one of several recent examples, but it’s certainly worthy of a closer look.

Blockbuster was a corporate titan, a household name, and at its peak had a market value of $5 billion. Its business model relied on two main streams of income: charging for rental of videos and DVDs and fines for anybody who failed to return their rentals on time. This had proven to be so successful that Blockbuster saw little reason to change, even when the world around them did.

In 1997 Reed Hastings founded Netflix. He’d been inspired to do so after being hit with a $40 Blockbuster fine and reasoned that he couldn’t be alone in being annoyed with fines that sometimes exceeded the purchase cost of the DVD. With Netflix there would be no late fees. Customers would pay a monthly subscription and receive their rental DVDs in the post. They could then keep them for as long as they wanted, but they would only be able to receive new titles when they returned their old ones.

It’s worth noting simply adopting a new business model won’t be an eligible activity to make a claim although the development of the technology to facilitate the change would be. Read more about the process…

It might have been a simple idea, but it proved to be a brilliant one. Blockbuster should have realised that Hastings’ innovation was a game-changer, but they were too wedded to their existing business model to react effectively. Blockbuster’s decision-makers stuck with what they knew. They made the mistake of assuming that if their business model had worked in the past, then it would continue to do so indefinitely.

Blockbuster still had an opportunity to steal a march on their upstart rival. Improvements in internet connectivity made the concept of mailing DVDs to customers obsolete. While some technological advances are sudden and unexpected, this one wasn’t. Both Netflix and Blockbuster had foreseen that the day was approaching when it would be possible to stream films directly to customers’ computers and televisions. Netflix, with their culture of innovation, met the challenge and launched their streaming service in 2007. Blockbuster, with a philosophy still closely wedded to the increasingly outmoded model of brick and mortar rental outlets, lagged well behind and didn’t manage to launch their own streaming service until 2011. By then it was already too late, and Blockbuster would become one of the most high-profile business casualties of recent times.

For established organisations the Blockbuster story is a cautionary tale, but there are valuable lessons that can be learned.  While Blockbuster made a good many mistakes, not least passing up the opportunity to purchase Netflix for just $50 million in 2000, the underlying cause of the company’s failure can be attributed to a failure to innovate. Blockbuster became a dinosaur; it had been successful for years, but when the Netflix comet struck it failed to adapt quickly enough and as a result it became extinct.

While the future is notoriously difficult to predict, it’s safe to assume that revolutionary technology will change the world in ways we still can’t even imagine. If the law of accelerating returns holds true, then the rate of progress is set to increase exponentially. In such a rapidly changing world it would be more important than ever for organisations to adapt and reinvent themselves in order to survive. A culture of innovation would be amongst the most valuable assets any organisation could possess.

 

Innovation – you might already be doing it!

innovation

Innovation is almost universally seen as a good thing. One great innovation can see an organisation gain a significant edge over the competition, albeit perhaps only in the short term. An organisation with a culture of innovation embedded in its DNA enjoys an even greater advantage; continually able to reinvent itself, its way of doing business, and the products or services it brings to the market, it has a far greater chance of continued success.

So what is innovation?

What exactly do we mean when we talk about being innovative? Is it just another corporate buzzword, or is it something more substantial?

The Merriam-Webster Dictionary defines innovation as:

  • A new idea, device, or method
  • The act or process of introducing new ideas, devices, or methods.

While this provides us with a good jumping off point, there is, perhaps, a slight flaw in Merriam-Webster’s definition. It’s quite possible to come up with a new idea, device, or method that is utterly unique but still totally useless. It might be an invention that nobody had ever conceived of before, but that doesn’t necessarily make the idea innovative. The thong diaper is an invention, it was even granted a patent in 2005, but it couldn’t sensibly be described as being innovative.

An invention has to be something new, but, as in the case of the thong diaper, that invention could still be pointless, or even ridiculous. An innovation is something much more than this; any true innovation always adds something of tangible value.

So we know that invention isn’t necessarily quite the same thing as innovation, but it’s also worth noting that innovation doesn’t always manifest in the form of physical products; it can just as easily be a new concept or way of doing business. The success of Dell Computers1 can provide us with an excellent example. Michael Dell struck on the idea of purchasing off-the-shelf components and cheaply assembling PCs tailored to his customers’ specifications. His business became officially known as Dell Computers on 3 May 1984, and it grew to be worth around $70 million by the end of 1985. There was nothing remarkable about Dell’s product, his innovation was in his business model.

What drives innovation?

Dell’s direct marketing business model was revolutionary in the 1980s, but other companies soon imitated the idea. Pressure from competitors, the need to drive down costs and increase productivity, new technologies, and changes within society itself, are all external factors that can drive innovation.

A business model that worked ten years ago might not work today. An invention that was on the cutting edge of technology a decade ago will eventually become obsolete. The ability to continually generate innovative ideas and products are a major factor in ensuring an organisation can thrive at a time of unprecedented technology-driven change.

A survey conducted by PricewaterhouseCoopers found that 97% of the CEOs they questioned valued the importance of innovation. 10% of them even identified it as their primary focus. However, while the overwhelming majority of organisations recognise that innovation is linked to success, there’s no question that some are consistently better at than others.

Great ideas rarely spring forth fully-formed in a single “eureka” moment, and waiting for a bolt of pure inspiration to strike isn’t likely to be a winning strategy. While external forces can drive the need for innovation, internal factors determine how well an organisation meets these challenges. It’s no accident that organisations prepared to invest in innovation tend to be the most innovative. However, it’s by no means the case that a company can always come out on top simply by throwing more money at a problem than its rivals. A smaller company that thinks and spends smarter than the competition can, as Michael Dell demonstrated in 1984, go from nothing to being a major player in a very short period of time.

When we think about companies with a proven track record of innovation, then Apple will very possibly top the list. It’s perhaps surprising then that this most innovative of companies has traditionally spent much less on research and development than many of its competitors. In fact, it was only in 2015 that Apple broke into the list of the twenty biggest spenders2. While a financial investment in innovation is important for most organisations, money is clearly not the sole deciding factor in achieving success. If everything else is in place, it’s quite possible for a small company to compete with the deeper pockets of its bigger rivals.

 

Links

  1. http://web.mit.edu/course/15/15.823/attach/Dell%20CASE.pdf
  2. http://www.strategyand.pwc.com/global/home/what-we-think/innovation1000/top-20-rd-spenders-2015

Claiming R&D in Construction Projects

“It’s just what we do”

“Problem solving is part of our job”

“We’re not a research and development company”

Despite the fact that many construction firms spend vast amounts of time and resources developing solutions for better, smarter, stronger, greener and more cost-effective designs and structures, it’s often the view that innovation is just ‘another day at the office’.

But here at R&D Tax North West, we say, “why should our industrious UK construction companies leave their well deserved credit with the taxman when they could claim for Research and Development (R&D) tax relief?”

Could Your Construction Activity be Eligible for R&D Tax Credits?

It’s true that the construction industry is a multifaceted entity, just a brief look at any Building Information Modelling plan will show you the level of detail and variety of disciplines involved to produce a structure from inception to construction.

So within this complex web of designs and plans, where does research and development fit; and more importantly, does it fit within your company allowing you to claim R&D tax credits? 

So first let’s consider the projects you have worked (are working) on. What evidence is there that you can claim R&D tax relief?

Criteria for Claiming R&D Tax Credits in Construction:

First of all; have you met a significant challenge in the project?

A challenge that would require that your business identify a solution or advance where there is no clear technological or scientific solution? Is there more than one potential solution? Are you unsure if the project will achieve the required outcome?

If you’ve answered yes, then this may mean that research and development is required in finding a solution. This may involve taking a risk; investing in your own resources and time to research the problem and test solutions.

A good indication that you are working on research and development is that you’ve needed specialist skills to understand an issue that hasn’t previously been resolved.  Or perhaps you are improving an existing product or process but are unsure of the outcome without appropriate testing. Some examples of this could be research in:

 

  • Developing a tailor-made solution to reduce waste and improve the environment
  • A new methodology that produces structures more economically
  • Processes for effective off-site assembly and transportation
  • Creating better efficiencies with plumbing or electrical designs
  • Innovative solutions to help a structure withstand a particular element, such as flooding, fire, earthquakes or unstable ground.
  • New ways to build in areas with restricted space
  • Developing new equipment, tools and products
  • Design of a new scaffolding, or roof system

 

The list goes on, yet many new innovative solutions remain unclaimed.

Check it in the Small Print

Love them or hate them, there is one thing that abounds in the construction industry and that’s contracts.

However, when it comes to R&D, contracts may be the key to identifying if you are eligible to claim.

For example, a contract with significant performance guarantees or indemnity clauses may point to the idea that the project holds many technological uncertainties . This could suggest that R&D may be required to overcome these uncertainties.

To claim R&D tax credits, your business would normally need to hold the rights to the solution and results of the research conducted (i.e. work to find a solution was done at your risk and wasn’t funded by your client or customer).

As we all know contracts aren’t always so straightforward, and at times contractors and consultants may be able to claim – depending on who created the designs or processes, why the work was done and who took the risk.

Deciding exactly who can make the claim for R&D tax credits can be quite involved as it depends not only on the nature of the contract but also whether the companies involved are SMEs or Large Companies, part of a larger group or some combination.

As a rule, it is generally considered that if you develop new innovations, engineering designs and processes in-house, then you are more likely to be eligible to claim R&D tax relief, even if the outcome of the research was deemed unsuccessful. Thankfully, the expert team at R&D Tax North West are able to analyse contracts and provide professional advice on your eligibility for R&D tax relief.

So whether your part in construction lies in architecture, engineering, information technology, manufacturing, landscape or general contracting – there is a chance that research taking place (even spread across different roles of your organisation) could be eligible for R&D Tax credits.

However if you don’t ask – you’ll never know. So contact R&D Tax North West today to determine your potential for R&D Tax relief now and for future activities.

Website Development? Think R&D Tax!

There’s no need for modesty here; you are accomplished in your trade and your business comes highly recommended.

 

You have the experience and the knowledge that supports you to bring a wide range of projects to completion successfully, from basic to complex with ease.

But tell me, what would be your strategy if you were suddenly faced with a project with an entirely new challenge; a project that surprised you with issues that require a completely innovative solution previously not attempted by your workforce?

Would you immediately admit defeat, cancel the project and save yourself any additional expense involved with investigating a solution?

Well, consider how one Web Development company decided to step up to the challenge using research and development (R&D) tax credits.

Supporting Innovation with Research and Development

If I was to ask you which industry sectors can claim for research and development from the UK government, your first thoughts may not turn to website development.

Yet many businesses in various industries are eligible for research and development tax relief, such as one inspiring Web Development company that R&D Tax North West supported to claim R&D Tax Credits for their dedication to researching a new technological approach.

Solving a New Challenge in Website Development

Faced with a unique challenge to their expertise, the Web Development company were presented with an original website that required an innovative restructure. The purpose of the website was to provide an online resource and match vetted service providers to customers within a certain region.

The website owners had, however, adjusted their business plan so that they now required the online service to be extended not just regionally, but nationally.

With the original website already relied upon by many users and bringing in steady revenue from advertising, a request was made by the owners to restructure the entire backroom function without losing site traffic, database information and advertising revenue which was critical to the website owners.

With a complex problem at hand, the Web Developers identified that they would have to:

  • Adapt the existing site to accommodate over 80 counties
  • Integrate Legacy Visual Basic and .Net framework coding in with the current coding languages
  • Incorporate multiple location based access
  • Develop a solution which could automatically and seamlessly incorporate, categorise and publish single copy, advertiser and user input, as well as provide instantaneous access to other products.
  • Deliver all requirements without replacing the entire legacy systems, which would create substantial costs to the website owner.

Not a job for the faint hearted.

Braving the Unknown with R&D

As it was not known in the industry if the existing systems could be modified accurately enough to achieve the changes required, the Web Developers needed to conduct thorough research, tests and trials. This research would not only ascertain if the modifications were achievable… but if it was also a cost-effective, reliable process that could set the standard for future restructures.

Noting the significant uncertainties faced, the Web Developers sought support from other equally experienced website designers on a consultancy basis.

Months and months of research and development led the team to investigate the technological challenges of delivering the required functionality, sometimes meeting dead ends and other times progressing with viable solutions. However, following a thorough investigation and testing innovative and diverse options it became clear that they could only deliver a fraction of the requirements using a modified system approach.

Did the 2 years of attempting algorithms, developing code and using considerable resources without an improved web solution end in disaster for the Web Developers?

Even though the Web Developers had to acknowledge that their research and development did not achieve the outcome that was originally desired, their resources were not wasted.

Overall they had proven that at this time and due to significant technological challenges in modifying the current system, the business goals of the website owner (or any other business requiring the same approach) could not be achieved.

And importantly, by taking the risk of researching previously unexplored processes, and attempting to seek an advance in technology, R&D Tax North West were able to support the Web Developers in claiming R&D Tax Credits; ensuring that this forward-thinking, innovative company could continue to explore new processes without running into financial difficulties.

Have You Attempted the Something Similar?

When it comes to R&D, even failed outcomes can be successes.

If you’ve conducted research and development and your project fails to achieve an advance, it’s not too late; you could qualify for R&D tax credits and support the UK in furthering innovation.

So whether you’re in web design, or any other sector seeking to make an improvement in science or technology; don’t write off your hard work or avoid research because of the costs – contact R&D Tax North West and discover new growth for your business developments.

Claiming R&D Tax Credits: What You Need to Know

It’s a great incentive from the UK government; conduct research and development activities within your business and you’ll benefit from a reduced tax bill or a cash repayment. In return, the UK benefits from an increase of innovation, investments and a stronger economy.

A great plan if your business consists mainly of laboratories, scientists and the latest technological capabilities, right? Well, not entirely.

You may be surprised to learn that even though you wouldn’t class the purpose of your business as ‘research and development,’ a project you may be working on actually could qualify for R&D tax credits. Let’s look at some reasons why…

Who Can Claim R&D Tax Credits?

To qualify for R&D tax credits, a project must seek to make an advance in science or technology, but before you immediately dismiss any hope of claiming, you need to first consider what an advance really means.

For instance, as a smart business owner it’s highly likely you look for ways to reduce costs, make better use of your resources and improve efficiency. So you may work on developing processes that support your business to increase manufacturing capability, produce less waste or speed up development and design times.

Whether these new processes apply to development of a new product or improvement of an existing product or process, the same rule applies; you are seeking an appreciable improvement (or advance) in:

  • How you make something
  • How your product performs
  • How much it costs to make

If achieving this improvement isn’t obvious and requires research as to which solution or approach will be more effective, then this comparison work could qualify as R&D.

R&D Examples for Your Sector

Projects that seek an advance, or appreciable improvement, will obviously vary from sector to sector.

For example, in manufacturing the advance could be identifying ways to reduce component count or increase reliability.  In I.T. or software development it may relate to improved security or reduced system overheads. In construction, a new engineering method or efforts to make products or processes environmentally friendly could also qualify.

Additionally, even if your project fails to achieve an advance following your research and trials, it can still qualify for R&D tax credits; in fact, not being completely successful can actually support the idea that there was a significant technological challenge.

The key point to remember is that an advance was sought, whether the end result was successful or unsuccessful – this is where the claims are made.

What You Can Claim for Your Advance

By now you may already have in mind a current (or potential) project that, much to your surprise, does qualify for R&D tax relief. But which costs can you claim for?

These generally fall into two categories:

  1. Activities that contribute directly to the attempted advance
  2. Certain essential administrative or supporting activities

Within these costs you can claim for salaries and the cost of employment (including employer’s national insurance and pension contributions). Happy days.

You may also be able to claim for materials in some cases, although recent changes to legislation restrict this option depending on the circumstance.

Don’t Miss Your Opportunity to Save

So if you were wondering if your business activities are eligible for R&D tax credits, then the answer could quite possibly be YES!

Of course, the area of R&D possibilities and applications is so vast we could never encapsulate it all in this brief overview. However, if you’re after a definite confirmation that you can claim R&D tax credits, there is a quick and convenient option. Just give us a call at R&D Tax North West1 on 01827 338118.

We will be happy to answer your questions and explain how R&D could apply to your business.

 

Links;

1: http://www.rd-tax-expert.co.uk/contact-us/