In today’s constantly growing and competitive sectors, research and development is essential. The Swedish government also aims to promote the growth of R&D and encourage companies to invest in R&D projects via different incentives. One of the incentives is a tax deduction on the R&D employee cost working on R&D.
To qualify for these tax benefits, companies must demonstrate their eligibility according to the R&D tax deductions.
These criteria include being able to distinguish between routine work and R&D work since the incentive aims to finance only the R&D work.
By being able to identify and distinguish activities that are part of routine work from R&D work, companies can more easily determine whether or not they qualify for R&D tax credits.
One of the main distinctions between routine work and R&D work is the nature of the work performed.
Routine work
Routine work is characterized by repetitive and well-defined tasks that are already established within the industry. These tasks aim to maintain regular activities and meet immediate needs within an organization.
Furthermore, routine work involves challenges that can be solved with ‘readily available’ information.. Thus, the challenges that arise do not represent any technical uncertainty or risk of failure, as the working methods are well established and tested.
R&D work
R&D work is characterized by the systematic approach to solving technical uncertainties, resulting in the creation of new knowledge that can be applied to the development of new products or to significantly improve existing ones.
Furthermore, the aim of R&D is to address and resolve specific technical uncertainties, this involves solving technical problems or questions for which there is currently no available solution. By solving the technical uncertainties, the R&D work results in the generation of new knowledge.
Example of R&D activities and routine activities in three different sectors:
1. Software sector : A company is developing software for improving customer support process
- ○R&D activity : Developing algorithms and models that can understand and respond to customer queries more effectively. The work consist of exploring in technologies such as deep learning, sentiment analysis, and AI to improve the accuracy and efficiency of automated responses.
- ○Routine activity: Tailoring existing software’s features and user interface to adjust the customer support process with a client’s business processes. The customization may include configuring data fields, implementing automated customer response and integrating third-party plugins.
2. Greentech sector : A company aims to minimize waste and increase production at their production facility.
- ○R&D activity : To achieve this an engineer is working on developing a new tool that uses less material in consumption but maintains the same power and output. The skilled engineer notes that there is technical uncertainty about how to develop this tool. Several iterative test trials are planned taking into account different parameters to resolve the technical uncertainty.
- ○Routine activity: To achieve this, they assign an engineer to optimize the production process. The engineer focuses on improving efficiency by identifying areas where material consumption can be reduced without compromising output. The engineer implements operational improvements to streamline production and minimize waste.
3. Foodtech sector: A company is developing plant-based meat alternatives.
- ○R&D activity : Researching and testing plant ingredients to replicate the taste, texture, and nutrition of traditional meat. This involves formulation development, nutritional optimization, flavor enhancement, texture modification, and sensory evaluation.
- ○Routine activity: Involves menu development, ingredient sourcing, staff training, marketing, and customer feedback.
It is essential to distinguish between routine work and R&D work according to the criteria for R&D tax deductions if you want to make sure to claim securely. The scheme can be complex and difficult to understand but At Leyton we aim to simplify the process for you, and helping you to get and secure your tax deduction.
