Research and development (R&D) are considered all the activities that a company undertakes to introduce new, innovative products and services to the market, staying ahead of its competition.
It is separate from most operational activities performed by a corporation. The research and/or development is typically performed with the expectation to contribute to the long-term profitability of a company. R&D may lead to the registration of patents, copyrights, and trademarks.
In Europe, R&D is known as research and technical or technological development (RTD).
R&D may be beneficial to a company's bottom line, but it is considered an expense. After all, companies spend substantial amounts on research and trying to develop new products and services. As such, these expenses are reported for accounting purposes. Any basic and applied research costs are recorded as they are incurred. But development costs can be carried forward.
There are 3 models:
One R&D model is a department staffed primarily by engineers who develop new products. There is no specific goal or application in mind with this model. Instead, the research is done for the sake of research.
The second model involves a department composed of industrial scientists or researchers, all of who are tasked with applied research in technical, scientific, or industrial fields. This model facilitates the development of future products or the improvement of current products and/or operating procedures.
There are also business incubators and accelerators, where corporations invest in startups and provide funding assistance and guidance to entrepreneurs in the hope that new innovations will result that they can use to their benefit.
When a claim is made, a technical report is needed. This includes:
- the company overview;
- the description of eligible r&d activities for a set period (technical details, issues, solutions);
- eligible expenditure breakdown;
- compliance check summary: staff costs, utilities, raw materials, grants, & capital.
Why is research and development (R&D) important?
R&D allows companies to create products that are difficult for their competitors to replicate. Meanwhile, R&D efforts can lead to improved productivity that helps increase margins, further creating an edge in outpacing competitors. From a broader perspective, R&D can allow a company to stay ahead of the curve, anticipating customer demands or trends.
If you need help and you want to know more, contact our r&d team here.