There has been an increase in research and development (R&D) tax credit claims from online retail and e-commerce companies keen to cash in on the relief offered.
However, HM Revenue & Customs (HMRC) has issued a one-to-many letter campaign warning online retailers about the risks of their claims being ineligible.
If you are an online retailer or an accountant for an online retailer, it is important to know about HMRC’s campaign and why you must exercise caution around R&D tax relief.
Why is HMRC sending a one-to-many letter to online retailers?
The tax authority is concerned that unscrupulous R&D agents are targeting retail businesses and misleading them into submitting erroneous R&D claims.
Most business owners are unfamiliar with the complexities of the R&D tax relief scheme, meaning they are likely to misunderstand the qualifying criteria and submit a false claim, often with the encouragement of untrustworthy advisers.
In the one-to-many letter (shared on the Chartered Institute of Taxation website), HMRC warns that these advisers typically make a “no win, no fee” promise and give the false impression that clients face little to no risk.
This can lead to companies paying hefty penalties for false claims they had thought were genuine.
The letter also explains that most online retailers’ R&D claims are not eligible because they are usually based on:
- Normal day-to-day business activities – for example, creating new products without advancing a field of science or technology.
- Using customer research to analyse the purchasing patterns of customers.
- Using new e-commerce platforms, stock management systems or dataset management systems, purchased ‘off the shelf’ and adapted to suit the business.
- Packaging solutions purchased from a third party – for example, 3D printed packaging model designed or adapted to suit the business.
For example, developing a new website and app for an online retail business does not qualify for R&D tax relief, because the project has not sought an overall advance in the field of science and technology.
That’s why it is vital to have your claim checked by a trusted R&D tax consultant with the knowledge and experience required to tell the difference between ineligible and qualifying R&D projects.
Trustworthy R&D tax consultants do not promise to pursue claims at all costs. Instead, they are open and honest about the validity of R&D projects and will tell you if a claim is not eligible for R&D tax relief.
Although this can be difficult for your retail clients to hear, they will appreciate your integrity and honesty in the long run. You will also save them from the costs of inaccurate claim penalties.
Are retail R&D projects never eligible to claim R&D tax relief?
Not necessarily.
While eligible R&D projects in the retail sector are unusual, they are not impossible.
For example, randd uk helped an e-commerce site for luxury interiors to claim a total of £129,000 in R&D tax credits.
The online shopping site incorporates technology that tailors products for shoppers based on their previous purchases and browsing history.
In this case, the company’s in-house software developers and engineers worked to achieve a genuine advance in the technology used by the retailer, meaning their project was eligible for R&D tax relief.
How to support your online retail clients with R&D tax relief
We advise you to reach out to your retail clients to ask if they have received the one-to-many letter from HMRC and if they’ve been contacted by R&D advisers.
Explain to them that the R&D tax relief scheme is complex and that they could face financial penalties if they submit erroneous claims.
If a client has already submitted an R&D tax claim, we can provide a free R&D claim health check to establish the validity of the submission and determine whether qualifying activities have been included.
If your client has not submitted a claim but believes their project may be eligible for R&D tax relief, you should always seek the advice of a trusted independent R&D tax consultant, because it is not always clear whether a project qualifies for R&D tax relief.
We know that 100 per cent accuracy is critical to the success of your claim. That’s why we are rigorous in our R&D tax claims preparation process. We’ll tell you upfront if a project is not eligible for R&D tax relief, saving you valuable time and energy.
However, if we believe you have a genuine case, we’ll work meticulously to prepare a robust claim that stands up to HMRC scrutiny. Should the tax authority come knocking, we’re well-equipped to defend your claim and help you claim the relief your client deserves.
