R&D Tax Credits for E-Commerce Businesses
What are Research and Development Tax Credits?
Research and Development 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 lost making it is possible to claim a tax relief worth up to 14.5% of the loss (subject to some restrictions). For example, a profit-making SME incurring £100,000 of staff costs in respect of an R&D project could be eligible for tax savings of £24,700.
How are R&D Tax Credits Relevant to E-commerce Businesses?
E-Commerce is a constantly evolving industry, with innovation to be found around every corner – not just by online sellers but also companies 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, integration with your back office and accounting systems, shopping baskets 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 on 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.
How does a Project Qualify for R&D Tax Credits?
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.
When is the Deadline to Claim R&D Tax Relief?
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.
From 1 April 2023, R&D Tax Relief claims rules require companies to submit a pre-notification of their claim to HMRC. This applies to new claimants or any business that has not claimed any R&D Tax Credits in the previous 3 years.
How Quickly Can I Receive My Repayment?
HMRC aims to process and make payment in respect of R&D tax credit claims within 28 days of submission. If your claim is picked for inspection, this will delay the timeframe for payment.
How Can We Help?
In the past, HMRC checks on R&D have been fairly relaxed. As a result, there are many supposed ‘R&D specialists’ that will offer to submit a claim on your behalf but often lack the qualifications or experience to do so. The fact that an R&D tax claim has been paid out doesn’t mean that it has passed any detailed review from HMRC and could still be inspected up to 6 years after submission. It is therefore more important than ever that you have the support of competent and qualified professionals to support you in your R&S tax claim. Our team will review your circumstances to determine the validity of your claim and therefore minimise the risk of a failed claim.
If you would like to discuss how Elver E-Commerce Accountants can help your companies please give us a call at 01942 725419.
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