The Hidden Engine: Process Innovation & the R&D Tax Incentive (RDTI)

When most businesses think of R&D, they picture breakthrough products and high-tech prototypes. But there’s a less visible — yet equally powerful — form of innovation often happening in the background: process innovation.

From developing smarter manufacturing techniques to streamlining complex systems, these behind-the-scenes advancements are critical to business performance, yet they often fly under the radar. As a result, when Kiwi companies prepare their claims under the R&D Tax Incentive (RDTI), eligible process innovation activities are frequently underreported or omitted.  

Whether you’re enhancing internal systems, optimising production methods, or trialling new operational models, there’s a good chance you’re doing more R&D than you think — and missing out on valuable support in the process.

This article seeks to demystify process innovation within the RDTI framework — breaking down what it is, why it’s often missed, and how it can qualify as eligible R&D. We’ll look at what Inland Revenue is really looking for, unpack common misconceptions, and share examples of process innovation in practice.  

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What is Process Innovation?

Process innovation refers to the development or improvement of internal methods, systems, or workflows that enhance how a business operates. It’s not about launching flashy new products — it’s about making things work better, faster, or more efficiently behind the scenes.

Think new production techniques that reduce waste, smarter logistics systems that optimise delivery routes, or custom software that automates manual tasks. These innovations can significantly improve performance, reduce costs, or unlock new capabilities.  

For a broader view on how process innovation is defined and applied globally, this article from Digital Leadership offers a clear overview.

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What the RDTI is Designed to Support

The R&D Tax Incentive (RDTI) is designed to encourage businesses to pursue innovation that tackles complex technical challenges.

It supports activities aimed at resolving scientific or technological uncertainty — in other words, problems where the path to a solution isn’t clear, and can’t be easily worked out by someone with relevant expertise. To qualify, the work must involve a systematic approach, such as testing, iteration, or experimentation, with the goal of improving products, services, processes – or creating new knowledge.  

👉 Check out our guide for more details on RDTI eligibility.

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Why Process Innovation Gets Overlooked

While the RDTI explicitly includes improvements to processes alongside products and services, many businesses still default to thinking of R&D as something that happens on the product side.  

As a result, innovation that’s happening behind the scenes — in how things are made, delivered, or managed — is often dismissed as operational. This mindset leads many companies to leave valuable R&D unclaimed, simply because they don’t realise process improvements can qualify.

Part of the problem lies in how process innovation is perceived: it’s often incremental, embedded within day-to-day work, or not documented as “R&D.” Teams might be testing new methods, refining internal tools, or redesigning workflows — all without realising they’re engaging in systematic problem-solving that meets the RDTI threshold.

Without expert input, these activities can easily slip through the cracks — unrecorded, unframed, and unclaimed.

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Practical Examples of RDTI-Eligible Process Innovation

To be eligible for the RDTI, process innovations must address scientific or technological uncertainty and involve a systematic approach. Here are some real-world examples across key industries:

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Manufacturing

• Example: A company is developing a new robotic welding process to join dissimilar metals in a way that ensures consistent strength and durability.

• RDTI Eligibility: The team is working to overcome technological uncertainty — there’s no known solution for achieving weld reliability with these materials, and a systematic series of trials is being run to test parameters and configurations.

AgriTech

• Example: An AgriTech business is trialling an automated irrigation system that adjusts based on real-time soil data, with unknown performance in varying climate and crop conditions.

• RDTI Eligibility: The team faces scientific uncertainty in how environmental inputs interact with irrigation responsiveness. They’re applying a structured testing regime to resolve this.

Software / Technology

• Example: An EdTech company is developing an AI-powered learning module that adapts in real time to each student's performance — adjusting lesson difficulty, pacing, and content format based on how the student is interacting with the platform.

• RDTI Eligibility: This feature is directly used by learners and delivers a new, personalised learning experience. The team is addressing technological uncertainty in how to dynamically adapt content based on live performance data across diverse subjects and age groups. The development requires structured testing of algorithms, user feedback loops, and interface behaviour — meeting the RDTI criteria for systematic, customer-facing innovation.

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Capex Isn’t Claimable. But Process Innovation Around It Might Be

It’s important to note that while you can’t claim the cost of capital purchases — like new machinery or off-the-shelf software — under the RDTI, the work you do to integrate, customise, or extend that technology may still qualify.  

If your team is pushing the boundaries of how a tool can be used, developing bespoke integrations, or solving technical problems to make it work in your environment, those activities can fall squarely within the realm of process innovation.

If your team is solving technical challenges to make a tool work within your unique environment — for example, modifying production equipment to achieve greater precision, integrating a sensor network into your line, or adapting machinery to improve output — you may be undertaking eligible R&D. These activities often involve uncertainty, iteration, and bespoke problem-solving.

So, while you can’t claim for the tool itself, you can often claim for the innovation required to make it fit, function, and deliver value.

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Bonus: Innovation Boost for New Assets

From May 2025, the government’s Innovation Boost allows businesses to claim a 20% tax deduction on eligible new capital assets — like machinery, vehicles, or equipment.

Can you claim the Innovation Boost and the RDTI?  

Yes. If the asset is used in eligible R&D — including through process innovation — the 20% deduction can be included as an additional expenditure in your RDTI calculation. It’s treated like a depreciation deduction, meaning it can increase the value of your R&D tax credit.  

Together, the Investment Boost and RDTI creates an attractive opportunity for innovative Kiwi companies: use the Innovation Boost to invest in new capital assets, and leverage the RDTI to support the customisation, integration, or development work that brings those assets to life.

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How Swell Helps You Uncover Eligible R&D

Identifying eligible R&D activities — especially those related to process innovation — isn’t always straightforward. When improvements happen behind the scenes, they’re often labelled as operational or technical tweaks, rather than the structured innovation Inland Revenue is looking for. That’s where Swell comes in.

We work closely with businesses to surface hidden R&D — activities that are solving real technical problems but might not be recognised as such internally.  

And importantly, we don’t just advise – we do the work.  

Swell identifies eligible R&D activities, advises on how they align with the RDTI, and handles the documentation, evidence-gathering, and application process on your behalf, so your team can stay focused on innovating.

👉 Talk to Swell about unlocking the full potential of your R&D tax claim.