Friday, 11 September 2020
What retailers need to know about R&D tax relief
While Covid-19 lockdown turned many consumers to e-commerce, there are options for retailers to improve their cashflow – one of which could be taking advantage of the Government’s R&D tax relief schemes. says Caroline Hawkins, senior manager of Shorts Accountants’ Radius team, explains.
Many retailers don’t realise the activities they are carrying out could make them eligible to claim R&D tax relief.
There is a general misunderstanding that this area of tax relief is only available for those companies carrying out a trade within industry or manufacturing but this is not the case.
R&D tax relief remains widely underclaimed but can make a significant difference to the tax position of any eligible business.
So, which businesses can claim R&D tax relief?
The guidance used by HMRC states that R&D relief is available for “companies seeking to achieve an advance in science and technology through the resolution of scientific and technological uncertainties.”
However, when it comes to applying this in practice, companies often assume their activities do not meet this criteria and miss out by failing to claim.
R&D tax relief claims can be made retrospectively for the previous two years, so there are considerable amounts of cash to be unlocked by innovative companies, with corporation tax savings worth up to 25% of the qualifying costs.
Retailers often qualify for R&D tax relief
Retailers are often a rich source of qualifying R&D but many do not recognise it. Most R&D in this field arises from software development.
The key point for R&D claims based on software developments is that the software should be modified substantially beyond its existing capabilities – simply configuring existing software to meet your commercial requirements is unlikely to be R&D if the underlying software is not advanced in any way.
While e-commerce sites using well-established technology are unlikely to qualify for R&D relief, there are many areas where retail companies can see qualifying R&D activities taking place, such as:
· Customer recognition and content personalisation
· Augmented reality offering try-before-you-buy capabilities
· Customer authentication, data management and site security
· Website developments, including chatbots and voice search functions
· Integration with stock control systems
· Interaction with third parties in fulfilment
· Real-time stock management across various platforms
· Pricing, promotions and payment technology
The simplest way to claim R&D tax
It is crucial to engage with an R&D specialist who fully understands the legislation and guidelines as to what activities do and don’t qualify for relief to ensure your company accurately assesses its ability to claim, and that any claim is maximised.
Many companies overestimate the time impact on the company to prepare and submit the claim. An efficient R&D specialist will:
· Work with you to minimise the amount of time that you need to spend on the claim
· Liaise with the company’s “competent professionals” – a two-hour meeting should be sufficient for the R&D specialist to obtain the information required for most claims. The company will also need to provide some financial cost information, typically mostly salary costs, but this should be straight forward
· Produce a technical report that is submitted to HMRC along with the corporation tax return, but only after you have approved it
For any retailer who has never previously considered making an R&D claim, or has claimed in the past but may not have maximised the claim, now is an excellent time to consider making a claim.