In previous blogs and in our downloadable jargon-free guide to R&D, we have commented on how often businesses miss out on claiming Research & Development (R&D) tax credits. From our experience of working with clients, the digital sector is certainly no exception.
Digital agencies often make leaps into the unknown to stay ahead of their competition, these efforts often qualify for R&D tax relief. Whether your digital agency is developing its own products, processes and services or improving existing ones, you could be eligible to claim back a cash refund.
It is not uncommon for digital agencies to already be investing in R&D without realising they qualify for tax relief. Perhaps this is because they don’t turn up for work in lab coats, or maybe it’s because R&D is so much a part of their day-to-day routine, they don’t realise they’re doing anything special at all.
Whatever the reason, the good news is that businesses can get a backdated refund for any R&D that took place within the past three years.
Is your digital agency eligible?
Before deciding whether your digital agency is eligible for R&D, you must first make a distinction between creative innovation and technical innovation. Unfortunately, there are no rewards for creative thinking alone. To know if you might be eligible you need to ask yourself three simple questions:
- Are you creating something new?
- Are you making improvements to something already in existence?
- Are you extending the overall knowledge in the field?
If your answer to either of these questions is YES, then you may be eligible to claim R&D tax relief.
Why your digital agency should be investing in R&D
The benefits of investing in R&D extend far beyond simply being able to claim a cash refund. Competition is fierce amongst digital agencies, the agencies who can call them themselves creators and innovators will inevitably have the upper hand, and now with R&D tax relief available, there has never been a better time to start.
It is also worth mentioning that even if your R&D project is unsuccessful, you can still claim tax credits. Failure is an unavoidable part of R&D, and so the scheme doesn’t penalise companies for trying.
What activities qualify for R&D?
- Developing bespoke software or apps for clients
- Developing custom algorithms
- Advancing platform functionality
- Developing new SEO auditing tools
- Utilising VR, AR or AI to create a new product, process or service
These are just a few examples of projects that often qualify for R&D. As stated before, many such projects constitute the day-to-day work of many agencies.
How to improve your chances of a successful claim
Maintain good records
Having accurate records is key to making a successful claim. More specifically, you need to have good records of your staffing costs. Staffing costs are a fundamental part of any claim, however, accurate payroll records aren’t always enough.
HMRC will want to see how much time is logged against specific tasks, so make sure you have a system in place to do this.
Factor-in indirect costs
When making a claim, it isn’t just the time of the ‘technical staff’ you should include, projects often involve staff from multiple areas of the business, not just the staff directly involved in the project. Including these indirect costs could ultimately result in a larger refund from HMRC.
Don’t just showcase the figures
Don’t let the previous points in this list lead you to believe it’s all about the numbers. While important, it is also important to get across just how innovative your project is. The more ‘’ground-breaking’ the project, the better the likelihood of a successful claim.
Next steps
If you believe your digital agency may be eligible for R&D, but need help going through the process, we recommend getting in touch with us for a free, no-obligation consultation.
Aston Shaw are R&D specialists – we have assisted hundreds of businesses in making successful R&D claims and we’d love the opportunity to do the same for you.
