The qualifying activities for R&D vary across industries, considering the broad scope of possibilities in their respective field. In order to ascertain eligibility for R&D tax credits, companies need to follow a four-criteria model, commonly referred to as the four-part test. This model offers a more precise perspective and helps determine whether a company is engaged in R&D endeavours. This include:
- Permitted Purpose delineates the R&D activities conducted with the aim of enhancing the performance, reliability, quality and functionality of a product or software.
- Technological Uncertainty refers to the unpredictable results that may arise during the development of a product or software, including the associated processes.
- The process of Experimentation indicates the need for a trial-and-error phase with the intention to overcome technological uncertainties.
- Technological in Nature means that the R&D activities must fall within the domains of engineering, physical sciences, biological sciences, or computer science.