Research and Development
Research and development (R&D) is when a business develops innovative products, services, or processes.
For many start-ups, particularly those in technology-driven or innovative sectors, R&D plays a central role in their business idea with funding used for a range of initial R&D activities such as:
Idea validation
R&D allows entrepreneurs to test the feasibility of their business idea. It can ensure that the product or service fills a genuine market gap and meets customer expectations.
Specialist skills
R&D may need the expertise of professionals who possess specialist skills, and salaries can be costly
Tooling and technology
Developing an innovative product can mean investing in new technologies, tools, or methodologies
Intellectual property
Protecting innovations through patents, trademarks, or copyrights can involve significant legal costs
Prototyping and testing
Before a product hits the market, it may undergo several iterations, and funding can support the creation of prototypes and testing to refine the final product
Market research
Understanding customer needs can involve market research, surveys, and potentially even focus group studies.
Funding is usually needed for R&D activities; with a range of specialist funding such as grants that are designed to help with R&D costs.
R&D grants
This is money used to fund R&D projects that doesn’t have to be paid back.
The grants can fund activities such as getting help from experts and accessing specialist equipment to create product prototypes.
The government provides R&D grants through UK Research and Innovation, which brings together seven research councils, Research England, and business-led innovation agency Innovate UK.
R&D grant schemes can be very competitive, and applying can be complicated.
Innovative companies in all industries can in theory benefit from R&D grants, but businesses in sectors such as technology and scientific research may be most likely to be successful with applications.
Find out more about R&D grants
R&D tax relief
Businesses with a project that meets the standard definition of R&D may be able to claim a reduction in their Corporation Tax bill.
The type of R&D tax relief you can claim depends on the size of your business and whether the project has been subcontracted to you or not.
Smaller businesses may be able to claim small and medium-sized enterprise (SME) R&D tax relief, while larger companies and SMEs subcontracted to do R&D work by a large company may be able to claim R&D Expenditure Credit (RDEC).
Find out more about claiming research and development tax relief.
Asset finance
This allows a business to acquire assets without putting additional pressure on cash flow or needing to raise a significant amount of working capital before purchase, but the finance is secured on the asset, therefore if you are unable to meet the repayments the asset could be taken back by the lender.
See the ‘purchasing a major asset’ article for full details.
Find out more about asset finance.
Overdraft / working capital credit
An overdraft is a line of credit on your business bank account that provides more cash than your business has as its own capital.
See the ‘starting a business’ article for full details.
Find out more about overdrafts.
Working capital credit (also known as a working credit revolver) is a line of credit where the available amount for borrowing is linked to a business’s balance sheet.
It is usually secured funding.
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Whilst we make reasonable efforts to keep the information in this guide up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
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Worth knowing
Innovate UK is the UK’s national innovation agency that provides funding to help businesses grow through the development and commercialisation of new products, processes, and services.
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