The R&D Tax Incentive (RDTI) is a valuable source of funding for Kiwi businesses investing in innovation. But getting a claim right involves more than identifying the R&D you're doing and adding up the costs.
There are several points in the process where businesses can come unstuck, creating extra work, slowing down a claim or, in some cases, affecting the outcome. The good news is that many of these issues are avoidable with the right approach from the outset.
Whether you're already claiming the RDTI or considering it for the first time, we've pulled together 10 common mistakes to watch for and, more importantly, what you can do to avoid them.
1. Enrolling the wrong entity
If your business has a complex structure, make sure you're enrolling the right entity for the RDTI. This is particularly important for groups with multiple trading companies, holding companies or entities that share people, costs and R&D activities.
It can be easy to default to the main trading entity, or the one where most of the R&D costs sit. But the right claimant depends on which entity is actually carrying out the eligible R&D and whether it has the required rights to the results.
What to do instead: Map out where the R&D activity, people, costs and rights to the results sit across your group before enrolling. If they don't all sit within the same entity, establish which entity meets the RDTI requirements before you start the claim process. Getting this right upfront can save considerable rework later.
2. Leaving your R&D record keeping until claim time
One of the easiest ways to make an RDTI claim harder than it needs to be is trying to reconstruct your R&D months after the work happened.
You need enough information to show what R&D was carried out and support the costs you're claiming. Without it, you can end up digging through old emails, project files and accounts trying to piece everything together, slowing down your claim and making it harder for MBIE and IRD to assess.
What to do instead: Build a simple RDTI check-in into your routine. Monthly or quarterly, record what R&D was carried out, who was involved, the progress made or outcomes achieved, and the main costs associated with it. You don't need a complicated new system. A consistent record using the tools you already have can save a lot of time and hassle when it comes to filing your claim.
3. Defining your R&D activities too narrowly
Your General Approval sets out the R&D activities you're seeking approval for, so it needs to reflect the full scope of the eligible R&D you've carried out.
A common mistake is describing activities too narrowly or looking at each one in isolation. This can cause problems when it comes time to apportion your R&D costs. If eligible work hasn't been adequately captured in your General Approval, you may be limited in the expenditure you can claim against it.
What to do instead: Look at your R&D project(s) holistically before drafting your General Approval. Map the technological uncertainties, the core R&D undertaken to resolve them, and the supporting activities that directly contributed to that work. This gives you a stronger foundation for allocating and substantiating the associated costs when you file your claim.
4. Overlooking Supporting Activities
Not all eligible R&D happens within the core activity itself. Other activities that directly support your core R&D may also qualify for the RDTI if they meet the relevant requirements.
These can be easy to overlook, particularly when the focus is on the people doing the most obvious technical work. This can mean missing eligible activity and the associated expenditure that helped make the R&D possible.
What to do instead: Look beyond the core technical work and consider what other activities directly supported it. Map these back to your core R&D activities and assess whether they meet the requirements for Supporting Activities. Doing this early will also help you capture them properly in your General Approval and track the associated costs.
5. Confusing business challenges with scientific or technological uncertainty
A project can be new, complex and commercially important without necessarily being eligible R&D. For the RDTI, the key question is whether the work is trying to resolve a scientific or technological uncertainty, rather than a business or commercial challenge.
Meeting a tight deadline, reducing costs, responding to customer requirements or deciding which features to build can all make a project difficult. But these challenges don't, on their own, make it R&D.
What to do instead: Get specific about the scientific or technological uncertainty you were trying to resolve. What couldn't you achieve using the knowledge, tools or approaches already available? What did you need to test, develop or investigate to find a solution? This helps separate the eligible R&D from the broader challenges involved in delivering the project.
6. Using the same approach to apportion every cost
When you claim R&D expenditure, IRD needs to be able to see how you've arrived at the amount and why the method you've used is reasonable. A common mistake is applying the same blanket percentage, such as a staff time or FTE allocation, across different types of costs.
Different costs have different drivers, so one method won't always give an accurate picture of what was actually used for eligible R&D. What works for employee costs, for example, may not make sense for materials, software or shared expenses.
What to do instead: Consider each type of expenditure and use an apportionment method that reasonably reflects its connection to your eligible R&D activities. Keep a clear record of the methodology and information behind your calculation, so there is a supportable trail from the underlying cost to the amount included in your claim.
7. Not reconciling your R&D expenditure before filing
Before filing your supplementary return, make sure the costs you're claiming can be reconciled back to your financial records.
Issues can arise when employee, contractor, overseas or other R&D costs have been calculated separately, but the final claim hasn't been checked against the underlying accounts and tax return. Unexplained differences can lead to questions from IRD and slow down the assessment of your claim.
What to do instead: Build a reconciliation into your process before you file. Check that each category of R&D expenditure ties back to your financial records, document any adjustments or apportionments, and make sure you can explain any differences between the RDTI claim and your income tax return. The easier the numbers are to follow, the easier it is for IRD to assess your claim.
8. Assuming all costs associated with eligible R&D can be claimed
Having an eligible R&D activity doesn't automatically make every cost associated with it eligible. There are specific rules around what can be included in an RDTI claim, and some types of expenditure need extra care.
This is particularly important when R&D happens alongside commercial production. For example, you might be trialling a new manufacturing process while also producing products that can be sold. Specific rules apply to how those costs are treated, including the materials or feedstock used and the value of what is produced.
Overseas expenditure, contractor costs, grants and other government funding also have specific rules and considerations. You also need to check that the same expenditure hasn't been included more than once in your claim or claimed elsewhere where this isn't permitted.
What to do instead: Treat activity eligibility and expenditure eligibility as two separate checks. Before filing, review any costs involving commercial production, feedstock, overseas work, contractors or other funding, and check for duplicated expenditure. This will help ensure the final amount you're claiming is accurate and supportable.
9. Leaving the RDTI process until the last minute
The RDTI is much easier to manage when you think about it throughout the year, rather than treating it as something to deal with when a deadline is approaching.
Leaving it late can create problems across the whole claim. You may be trying to reconstruct R&D activities, find supporting evidence, work out expenditure and resolve gaps in your General Approval all at once. It also leaves less time to deal with any questions or issues that come up before filing.
What to do instead: Put the key RDTI dates in your calendar and work backwards from them. Allow time for your General Approval, regular R&D and cost tracking, year-end reconciliation and preparation of the supplementary return. Spreading the work across the year makes the process more manageable and gives you time to address issues before they become problems.
10. Looking at your RDTI claim through only one lens
A strong RDTI claim needs both a technical and financial perspective. Your technical team understands what R&D was carried out and why it qualifies, while your finance team understands the expenditure and how it connects back to that activity.
Relying too heavily on one side can leave gaps. A technically strong claim without the right financial detail can make costs difficult to substantiate. Equally, having the numbers without a clear understanding of the underlying R&D can mean eligible activities or expenditure are missed.
What to do instead: Bring technical and financial expertise together, but keep ownership of the RDTI process clear. You don't need lots of people managing the claim. You need a clear owner who can draw on the right people from across the business and bring everything together into one complete, well-supported claim.
Take the complexity out of your RDTI claim
Getting an RDTI claim right takes work, particularly when you're navigating the requirements alongside running your business and getting on with the R&D itself.
Swell specialises in the R&D Tax Incentive. We manage the process end to end, from identifying and documenting eligible R&D through to preparing your claim and handling liaison with MBIE and IRD.
Our role is to take the complexity off your plate, make sure the process is handled properly, and give your team more time to focus on the work that matters.
Considering an RDTI claim or want a second look at your current approach? Talk to the Swell team.
