Research and Development for the retail sector

Sarah Hallam - Menzies Accountant

Sarah Hallam – Retail Specialist

Retailers are creating new personalised and dynamic customer experiences whether it is aimed at the online market or bringing the in-store experience online. Consumers are constantly looking for new ways of bringing fun into the way they shop and bring innovative products to the changing customer base.

As a result, retailers are investing significantly in their product development, technology and where there is no off the shelf solution, they are developing new software and systems or adapting existing packages to fit their needs which could qualify for Research and Development (R&D) tax credits.

Retail Case Study

Product development

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With a change to a more sustainable future customers are looking to retailers to provide products that provide environmental, social and economic benefits while protecting public health and the environment. Whether this be the latest food trend or the war against plastic waste, retailers need to develop existing and new products to meet these trends.

We have worked with a company that introduced coconut water to the UK market and has expanded their product range to provide innovative substitutes for people with soya allergies. This company has benefited from tax benefits of over £75k and continue to develop its existing and new product ranges.

We have also undertaken R&D claims for a lifestyle brand selling holistic health and beauty products.

Passionate about health and wellbeing, sourcing skincare ingredients that were vegan was a key challenge within the project and significant R&D was carried out to ascertain the exact source of each synthetic ingredient in the base formula. The company had qualifying expenditure in excess of £300k in a four year period resulting in tax benefits in excess of £75k.

Website development

Whilst there are many existing platforms businesses can use, this can be a highly complex and competitive area that often requires customisation and further development. One of the main principal problems is the search functionality where retailers sell high volumes of products and making this engaging so consumers don’t get lost in the data before making that vital purchase. Another area of customisation is the integration with the legacy stock and archaic back office systems.

Big Data

Retailers collate a huge amount of data to gain insights into their customers and understand their behaviours and preferences. Whilst there are off the shelf solutions out there, many companies wish to develop their own programmes to provide bespoke information and protect their data from the requirements to share this with third parties if using their solutions.

Personalised products

Personalised products are a growing trend and many mass produced retailers are seeing this as a growth area. This often leads to the development of bespoke customisable functions to existing ecommerce platform solutions, irrespective of whether it is built from scratch or adapted from existing technology.

Qualifying expenditure and tax credits

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Qualifying expenditures for R&D can be claimed for the costs of employing staff who are involved in undertaking this work but also on payments made to subcontractors or consultants assisting in the research and development projects, alongside the costs of the materials used.

Profitable SMEs can obtain an enhanced deduction of 130% that equates to tax relief of up to 25% of qualifying expenditures. The regime is particularly beneficial for early stage and loss-making companies, as a payable tax credit can be recovered from HMRC equivalent to 33.35% of the qualifying expenditures.

For large companies a tax credit is available, equivalent to 13% from 1 April 2020 of the qualifying expenditures (Research and Development Expenditure Credit – RDEC). This can be recognised as a taxable item above operating profit in a company’s financial statements, with the net amount of 10.5% payable to the company.

How can we help retail businesses?

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Our specialist tax team works with our clients to understand their businesses and consider any potential reliefs available, identify qualifying activities and expenditures and undertaking the necessary work by following a proven claims process. We can also assist in developing systems to improve identification and recording of qualifying expenditures.

Posted in Blog, Retail