Lisa-Marie Smith, director at R&D tax consultancy ForrestBrown, says agencies could be in line for a £50k cash boost by applying for R&D tax credits.
What do you think of when you hear the term R&D? Many conjure the image of a lab assistant in a white coat and safety goggles, or an engineer in greasy overalls holding a clipboard, but leaving these clichés aside, R&D actually permeates a great deal of activities within a vast range of sectors – and agency land is no different.
And the good news is, for those agencies, developers and designers who are doing R&D, the government will hand a sizeable chunk of any investment back in the form of R&D tax credits, a scheme managed by HM Revenue and Customs (HMRC). The average claim made by companies in the UK is worth just under £50,000 and for those with a tax year end in March, a welcome financial boost for the first half of the year is just around the corner if they decide to claim.
We’ll come on to what agencies can be doing now to prepare a claim for March shortly, but first let’s take a look at some of the things that can be classed as R&D for tax relief purposes. The easiest way to demonstrate is to take a few real examples.
What counts as R&D?
We recently managed a claim for Midlands-based creative communications agency RBH who attended a Drum event where we gave a summary of tax credits and their benefits. RBH had developed an iPhone app for a shopping centre client, an e-commerce platform for a fashion retailer which integrated a CMS with legacy stock systems, and a marketing portal for a car manufacturer. Each piece of work combined creative flair with an intelligent problem-solving approach, nothing out of the ordinary for a creative agency you might think?
However, in finding solutions unique to the problems presented to them, the agency entered the relative unknown in doing so. HMRC’s test for genuine R&D is whether an ‘appreciable improvement’ has been found, having addressed a ‘scientific or technological uncertainty’. In each case this had been true of RBH’s work because it gave its clients a competitive advantage, and indeed itself one in being able to market these new capabilities to other potential clients.
There was a similar story for London-based Gravity Thinking, who had developed a unique and highly-creative interactive film for a client. The work gave Gravity’s client a unique piece of content, and gave the agency proof-of-concept which it could talk to other clients about. Both agencies secured tax relief payments in December last year which are already being invested into further innovation.
Digital agency Mando, who bring together creative and technical talent to deliver real benefits to a range of clients, were able to claim significantly more relief than had first been estimated. As other direct and indirect costs were able to be factored in, including administration, clerical activities, finance, training and personnel activities, its eventual claim was more than double the anticipated figure. Commercial Director Dan Prior said: “ForrestBrown have a great approach providing their expertise to guide us through the processes. I was hugely surprised and pleased at the eventual figure, which has given us a real boost in terms of being able to invest further in research, innovation and leading edge technology.”
Preparing a claim for March
March is fast approaching, but it’s not too late for agencies to prepare a claim in time if they start making preparations now. Our advice to these agencies is:
1. Begin gathering supporting information. Payroll information, timesheet data, freelancer and supplier costs, material costs are all assessed and form an important part of a claim. Whether you decide to use a tax credit consultancy or attempt a claim yourself, this information will be crucial in evidencing the R&D that took place
2. Look back on activity for the past two years. Any R&D that took place between March 2014 and March 2016 can be considered, but from 1 April, agencies would lose the ability to claim for activity up to 31 March 2014 completely.
3. Amend your existing tax return. You will already have submitted your corporation tax return, so a March R&D claim will involve you making an amended return to include provisions for the R&D claim, including all of the evidence you will have gathered.
4. Start as soon as possible. If you’ve not submitted a claim before it will take you some time to navigate the process. Tax credit consultancies, although able to turn claims around relatively quickly, are approaching one of their busiest times of the year, so speak to them now to give them as much notice as possible.
For more information on R&D tax credits including eligibility and potential claim value, visit our website or call the ForrestBrown on 0117 9269022.