Research and development tax credits have been around for many years now, but in recent years there has been an important change that not all businesses are aware of. There is still a perception that to claim the relief you need to do something truly innovative. However, R&D tax credits are something HMRC are trying to encourage and are available for businesses who incur costs trying to achieve improvement, in processes and systems as well as to products.
This is particularly significant when it comes to digital agencies. The digital sector is at the very forefront of innovation and so much of what digital agencies currently do in terms of improving processes and overcoming technological problems could be eligible for R&D tax relief.
The sector is evolving year on year and at huge speed. As a result, digital agencies are constantly taking risks to remain competitive by developing products and services with new technologies, all of which could mean they are entitled to R&D tax credits or relief.
What qualifies for R&D tax credits for digital agencies
Digital agencies do some or all of the following on a day to day basis, which may well be thought of as fairly ordinary day to day tasks:
- Achieving improvements to user experience on websites using complex data science
- Integration of new software into different devices
- Making websites/apps/games work faster
- Development of bespoke cross-platform mobile apps
- Programming interactive hardware to work with these apps and software
- Translation of software into different languages
- Development, modification or integration of changing software
These activities could all be eligible under HMRC’s guidelines and could potentially be entitled to tax relief which could be worth up to 230% of the R&D expenditure, which includes the wages for the staff spending the time undertaking the work.
Any activity carried out that involves overcoming a technological uncertainty in the past 2 years could be entitled to a cash refund. This R&D tax relief covers a wide range of expenditure, primarily staff salaries as above (including NIC and pension contributions), subcontractors and software.
The R&D tax credit claiming process can be a complex, time-consuming and potentially overwhelming procedure. Therefore, it’s best left to experts with experience of dealing directly with HMRC to ensure a R&D claim is maximised to get your business the full benefit.
Matthew Barton is chartered accountant, Haines Watts Leeds