Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. However, many retailers are not aware of the full extent of the areas that qualify as R&D and could potentially be missing out on thousands of pounds worth of tax credits.
Below, Jenny Tragner – director at R&D tax credit consultancy, ForrestBrown – offers six top tips for retailers looking to utilise the government scheme.
- Be open minded when it comes to what classes as R&D. There’s no need to be sending people into space or turning lead into gold. The government is looking to reward businesses that foster a culture of innovation. Simply improving your stock management systems, billing processes or website will lead your competitors to follow suit. Consumers will see benefits too and it’s this continuous evaluation and development that the government is looking for.
- Once you’ve thought about what activity classes as R&D, consider where in the business this might take place. Traditional bricks-and-mortar retailers might employ many staff, the majority being store staff. R&D activity is more likely to be found within head office teams, often IT or e-commerce.
- Don’t be afraid to seek a second opinion on whether your business activity qualifies. You might have an in-house team or an external adviser looking at your R&D activity, either of whom may have deemed your activity non-qualifying. Don’t be put off – we’re regularly reviewing claims which have been prepared in-house or by other advisers where there are obvious gaps. If you don’t agree with the advice you’re given, go elsewhere.
- Identifying all qualifying costs is the key to maximising an R&D tax credit claim. On average, an R&D tax credit claim is worth £53,876 to SMEs and £272,881 for large companies, but you can only expect to be rewarded with such high numbers if you recognise all qualifying costs. It’s important to note that even outsourced costs can be included in your claim. Ensure you review relationships with subcontractors, or any third party labour you’ve engaged to support your R&D, to ensure you don’t miss out. Being aware of what qualifies before submitting a claim could be worth tens of thousands of pounds in benefit.
- Once you have identified what qualifies as R&D activity within your business, the next step is explaining this clearly to HMRC. As R&D can take place in such a variety of departments, it’s important to get the right people involved to explain exactly what has happened, and what has been spent. This requires getting your technical team involved to either write that explanation down for HMRC, or work with an external adviser so they can collate all the relevant information and present back to HMRC on your behalf.
- Finally, keep good (ideally, real time) records of investment in R&D. Doing this will make your claims more precise and will help show a systematic approach to your R&D activity. It can account for all qualifying expenditure and will demonstrate that any innovations you made were the result of planned R&D work and not an accidental discovery.