There is something of a misconception surrounding the term ‘research and development’. To many people, it evokes an image of science labs or industrial engineering – but today the definition of research and development (R&D) is much broader. You don’t need a lab coat or a test tube to qualify for R&D tax credits, just the desire to innovate within your industry, and this is certainly true of digital marketing.
It is also not true that getting tax relief is difficult – it may be intimidating if this is something that your business has never considered before, but the benefits of getting your head around the requirements and applying for tax relief can be enormous.
Digital marketing is becoming ever more technical with businesses understanding the need to analyse data and utilise technological solutions, and this is exactly the kind of work that can qualify for R&D tax relief. So, let’s take a look at some of the facts about getting tax relief, and how this could apply to your digital marketing company.
What are R&D tax credits?
The technical definition is of R&D tax credits is broad – in the UK it is designed to reward companies for investing in innovation. This means that businesses can offset a large number of the costs of a project – such as staff, software, workplaces – if they are a limited company that spends money on producing new product developments or processes that advance knowledge and advantage the industry.
This means as long as the work you are carrying out falls under these criteria, you can claim R&D tax relief. Interestingly, there is no part of the definition that states that your innovation needs to successful – if you find out that this innovation is not possible, you can still claim the tax relief.
What qualifies as R&D in digital marketing?
It is important to note a couple of caveats before businesses get too excited about what you can claim for. It is important first to draw a distinction between innovating creatively and innovating technically. Much of the work of digital marketing business necessarily involves creative innovation – but this is not eligible for tax relief.
It is on the technical side of digital marketing that your business can qualify for relief. Functionally this can involve a great many things such as developing tools for data analysis, creating algorithms that improve the performance of an existing piece of software or writing computer code to deliver SaaS (software-as-a-service) to clients – as well as myriad other possibilities.
No matter whether you specialise in machine learning, search engine optimisation (SEO), virtual reality, or software development, the work that you get your R&D tax credit relief for can vary enormously.
How to get R&D tax relief for your work
In order to get your tax relief your business much be able to show how you are innovating, and why this counts as R&D. Current government guidance includes that as a part of your application for tax relief you need to be able to show four things:
- That you are looking for an advance in technology
- That you had to overcome some sort of uncertainty
- That you made attempts to overcome this uncertainty
- That this is work that others in your field could not easily do
In any case, it is a great idea to work directly with R&D tax specialists if you are considering applying for tax relief. Those with experience working other digital marketing businesses will understand common pitfalls and issues, and be able to provide you with specific information on how you can make it more likely that your application is successful.
Final thoughts
It has been estimated that around two-thirds of British businesses who are eligible for these R&D tax credits never make a claim. This means that there are likely a huge number of digital marketing companies that are carrying out work that would qualify for tax relief – but simply are not applying for it.
Given the financial incentives to do so, it is a great idea to examine that work that your business does on a day-to-day basis to establish whether you would qualify. As digital marketing becomes more technically focused, there will be even more opportunities, so now could be the perfect time to start carrying out these sorts of projects.
