R&D Tax Relief as an Instrument Supporting Business Innovation: A Sequential Model for the Qualification of R&D Activity and Costs
Purpose: The aim of this article is to develop a sequential model to help businesses identify R&D activity and related costs for the correct tax settlement of R&D tax relief. Design/Methodology/Approach: The article employs a literature review and a case study. Based on a review of literature concerning R&D activity, including government support programmes, a sequential model was proposed to ensure the correct settlement of R&D tax relief. The practical application of this model is then demonstrated using the example of a manufacturing business operating in Poland. Findings: Researchers tend to focus on the role of R&D in the innovativeness of businesses or economies, as well as on evaluating the effectiveness of tax incentives in supporting such activities, according to an analysis of the literature on R&D activities and government support programs. However, there is a lack of proposed solutions to assist businesses in developing their own R&D activity and innovation capabilities through tax relief. Consequently, the authors proposed a model solution to serve as a practical support tool for business entities wishing to utilise R&D tax relief. This model integrates the identification of various R&D activities undertaken by an businesses and their associated costs with an assessment of their eligibility for R&D tax relief, and calculates the income tax benefits derived from the relief. The case study demonstrates that, once adapted to the specific needs of a business entity and the applicable tax regulations, the proposed model serves as a useful support tool in the process of utilising the R&D tax relief. The model outlines a sequence of key actions that, when implemented, not only streamline the preparation of the necessary data and documentation for R&D tax relief, but also mitigate the risk of issues arising during tax audits – such as those arising from the incorrect identification of R&D activities or errors in determining eligible costs. Practical implications: The proposed Sequential Model for the Qualification of R&D Activity and Costs, which is designed to ensure the correct settlement of R&D tax relief, can serve as a useful tool. Once adapted to the specific needs of a business and the applicable tax regulations, it facilitates access to the R&D tax relief and helps to reduce the associated risk. Originality: This article contributes to the literature on R&D activity by providing business entities with a practical tool in the form of a sequential model to support the process of qualifying R&D activities and their associated costs for the purpose of correctly settling the R&D tax relief.