The UK’s e-commerce sector continues to go from strength to strength. According to figures published earlier this year by Ecommerce News Europe, business-to-consumer e-commerce turnover in the United Kingdom is on course to reach over 200 billion euro by the end of this year, an increase of nearly 15 per cent compared with last year.
Lancashire is contributing to this growing sector with an increasing number of new technology-focused businesses flourishing across the county, such as Burnley emerging as one of the UK’s ‘Tech Towns.’
Modern e-commerce systems are transforming local economies here in Lancashire and other parts of the UK as almost anyone can now transact online. However, setting up and maintaining a large e-commerce operation can often be a costly and complex undertaking with huge technical challenges. It is here that incentives such as R&D tax relief can play an important role in supporting businesses seeking to innovate their online capabilities.
The UK Government’s R&D tax relief scheme offers innovative companies up to 33p relief for every pound spent on qualifying R&D (dependant on the company status and its financial position).
Given the attractive tax rebates on offer, it is not surprising that HMRC has been increasingly scrutinising R&D tax relief claims. It is therefore essential for companies to focus their efforts on the appropriate areas if they want to help ensure their application is successful.
Within the e-commerce sector, important distinctions must be made about the type of website-related developments that will qualify for R&D tax credits. Generally, sites built using well established technologies will not be eligible, nor will any work related to the user experience, such as content and design. Projects that are likely to qualify are more complex ones involving bespoke coding that require developers to create or implement innovative solutions or technology.
To help illustrate this point, there are a number of common areas where companies can make claims. The first is focused around ‘availability.’ Nowadays most websites with simple product offerings can be created with an off-the-shelf template. However, problems arise where the product offering is more complex – involving different design options, colourways or combinations, for example – or where the system needs to check availability and thus link to a back-end database before it is able to accept an order. Integration development work to implement these types of options may well qualify for relief.
Developers may also have to be more inventive where there are complicated pricing structures or promotional offers such as ‘buy one get the second half price.’ Promotions like these can be problematic enough within an in-store environment, as staff attempt to work out which ones apply and which can be used in combination with other offers. It is therefore no surprise that replicating them automatically online, and in real-time, can be a major challenge and could therefore qualify for R&D tax relief.
Sequencing payments is another potentially qualifying area. With some types of purchase, such as travel bookings, equipment hire or a bathroom refit, it is common to take deposits or make staged payments. These functions may require companies to develop new and innovative integration technology solutions which could be also subject to R&D tax relief.
On some e-commerce website orders can only be accepted when buyers provide proof of identity or need to complete eligibility checks, such as checking their credit score or qualifications. In these cases developers need to find ways to link to other back-end databases for verification while trying to ensure a swift and seamless process. Investment in implementing or enhancing these type of processes could be eligible for R&D tax relief.
A final area of focus is around fulfilment. Where goods are being despatched directly from a third party, the system will need to integrate with that third party site to check stock and arrange delivery. This would typically apply to e-commerce retailers which ship directly from overseas manufacturers or work in partnership with logistics companies.
Any web development work focused on fulfilment or any of the other points above could qualify for R&D tax relief. Where significant investment is required the rebates could be substantial so it is essential that companies interpret the rules around R&D tax relief correctly and use the right terminology in making a claim. It is important to work with a specialist adviser, such as ABGI-UK, which knows the landscape and can help deliver a successful claim.
R&D tax relief will continue to play an important role in the growth of the e-commerce sector, here in Lancashire and across the UK. Innovative businesses must ensure they get the support they need to secure this benefit when investing in upgrades and improvements to their websites.
ABGI-UK are supporters of Digital Lancashire and thanks to this partnership, savings are being made across the county and are being reinvested into the local digital economy. Russell McGrath is our local Innovation Funding Specialist and can be contacted by email
firstname.lastname@example.org or calling 07572 238 503.