Tax and SARS knowledge base
Research and development tax incentive for a company
When can a company deduct research and development expenditure?
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Direct answer
A company should not claim the research and development tax incentive merely because it developed a product, improved a process or spent money on technology. The incentive has statutory requirements and an approval process. Start by determining whether the work is scientific or technological R&D within the current rules, whether approval and timing conditions are met, and whether the project records support the claimed expenditure.
SARS publishes current R&D incentive guidance. Use it alongside the applicable law and specialist review before a tax return claim. Routine product development, ordinary engineering, market research and implementation work can look innovative commercially without satisfying the technical requirements.
What this means in practice
The strongest R&D file is built while the project is running. It describes the technical uncertainty, hypothesis, experiments, failures, results, staff time, expenditure and decisions as they occurred. A narrative created only at tax-return time is harder to test and can mix eligible technical work with ordinary business activity.
Create a separate project code for each potential R&D project. Finance should reconcile invoices, payroll and contractor costs to that code. Technical staff should retain project plans, design iterations, laboratory or test records, data, meeting notes and reports. Keep commercial, marketing and production-scale-up activities distinguishable from the claimed R&D work.
Do not assume a supplier invoice proves that the underlying activity qualifies. It tells you what was paid, but not whether the activity met the statutory requirements, when it occurred or whether an approval requirement was satisfied.
Step-by-step
- Define the candidate project.
Record the technical objective, uncertainty, planned method, expected knowledge gain and start date. Identify the people and entities doing the work and the location where it occurs.
- Separate R&D from normal operations.
Divide the project into work packages. Mark experimental scientific or technological activity separately from marketing, routine testing, quality control, production, training and ordinary software or engineering implementation.
- Check approval and timing requirements.
Consult current SARS R&D guidance and obtain specialist review before relying on an incentive. Maintain a calendar for applications, approvals, financial-year cutoffs and return preparation. Do not backdate a decision from an invoice date.
- Build a cost reconciliation.
Trace salary, contractor, materials and other costs to source records and project time. Record allocation bases and exclude costs that cannot be supported. Reconcile the final schedule to the general ledger and tax computation.
- Prepare the technical evidence pack.
Keep plans, experimental records, code or design versions where relevant, test results, research reports, approval correspondence and management decisions. Capture failures as well as successes because they can show genuine uncertainty and investigation.
- File only after review.
Complete current ITR14 disclosures from the reviewed calculation. Retain the approval and supporting file after filing, since SARS may request evidence for the claimed activity and expenditure.
Documents and records to keep
Keep project plans, technical reports, experiment logs, source data, designs, test results, time sheets, payroll records, supplier agreements, invoices, allocation workings, approval correspondence, board papers, tax computations, ITR14 workpapers and the filed return. Keep an index that links every cost line to a project and underlying record.
Important limits and exceptions
This guide is not a technical R&D opinion or approval application. The incentive is not a general deduction for innovation. Current rules, approval requirements, exclusions and timing must be checked before a claim. A project can include both qualifying and non-qualifying work, so a single project budget should not be treated as the tax amount.
Do not use a prior approval or another company's project as proof that the current project qualifies. Facts, activities and legislation may differ.
When to get tailored advice
Get tailored advice before incurring or claiming material expenditure, where work is outsourced, intellectual property is shared, an application is incomplete, or costs are mixed with production or commercialisation. Advice is particularly important where the investment decision relies on a tax outcome.
TaxProof can help organise project records and finance reconciliations. We cannot confirm incentive eligibility without current specialist analysis.