Research and Development (R&D) tax credits support companies that work on innovative projects in science and technology. R&D tax relief for small and medium-sized enterprises means that you can deduct an extra 130% of the qualifying costs from their net profit in addition to the normal 100% deduction. If a business is loss-making it is possible to claim a tax credit worth up to 14.5% of the loss (subject to some restrictions).
E-Commerce is a constantly evolving industry, with innovation to be found around every corner – not just by online sellers but also businesses that create functionality for e-commerce businesses. If you develop your own bespoke system – or even modify off the shelf software (it must be “transformed substantially”) there’s a fair chance your project will qualify. Examples of projects that may qualify include customer authentication, personalisation, stock control, or integration with your back office and accounting systems, shopping basket and payment enhancements, and improved cybersecurity. Relying on existing platforms and shopping trolleys isn’t likely to result in any qualifying R&D expenditure. Designing websites using existing technology isn’t a qualifying activity either.
Given the nature of e-commerce projects, it is most likely that the majority of the relevant expenditure will be in labour (mainly software developers). The cost of sub-contractors can also be included but the costs of sub-contractors are discounted to 65% of the original cost before the enhancement is applied.
Not surprisingly there are a number of requirements that need to be met in order to qualify for R&D tax relief. The conditions that a project must satisfy are one of the more complex areas of the relief and are determined by a combination of accounting rules and definitions contained in the Department for Business, Innovation & Skills guidelines.
You can also apply for advance assurance. If this is granted any R&D claims in the first 3 accounting periods will be accepted if they’re in line with the approved project.
It is also important to know that you can claim R&D tax credits up to 2 years after the end of the accounting period it relates to. So, even if your corporation tax return has already been submitted for a relevant period it is not necessarily too late to claim. When making the claim you will need to explain how your project looked for an advance in science or technology and aimed to achieve this advance, how it had to overcome scientific or technological uncertainty, how this uncertainty was overcome, and why it could not easily be worked out by a professional in the field.
If you would like to discuss how Elver E-Commerce Accountants can help your business please give us a call on 01942 725419.