How to submit an R&D tax reclaim for e-commerce

Tima Miroshnichenko
R&D tax reclaim - smiling man working at a laptop at home

Research and development are key to getting ahead of the competition and launching products that add genuine value, but it can get pricey. You can offset the costs for your e-commerce store through an R&D tax reclaim.

There are multiple types of relief available for e-commerce businesses with research or development costs. You can submit an R&D tax reclaim if you fit the criteria. You will be surprised at the scope and how likely your e-commerce store is to accumulate relevant costs.

How is an R&D tax reclaim processed?

Your R&D tax reclaim will be processed differently depending on whether your e-commerce store has made a profit or a loss in the take year. According to HMRC, you can:

  • “deduct an extra 130% of your qualifying costs from your yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
  • claim a tax credit if the company is loss-making, worth up to 14.5% of the surrenderable loss”

What are the criteria for an R&D tax reclaim?

To be eligible for an R&D tax reclaim you must:

  • Be a small or medium-sized company
  • Have less than 500 staff
  • Have a turnover of under €100m or a balance sheet total under €86m
  • Have costs that fit the definition of R&D expenditure

What is the definition of an R&D expense?

If you are looking to submit an R&D tax reclaim you must ensure that all expenditure falls under the following remit:

  • The work must be part of a specified project to make an advance in science or technology
  • The work must be related to your e-commerce store directly and cannot be used to feed into an unrelated business or line of business
  • You must be able to explain how the work completed looked to make an advancement and how it did so or failed to do so
  • You must be able to demonstrate that the information was not easily available without doing the work

Costs on the project are counted from the date you start working on it until you “develop or discover the advance, or the project is stopped”. The research can be to improve an existing product or to create a new one. It could also be to further the technology used on your e-commerce portal or site, for example.

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Costs you can claim

The costs categorised as R&D expenses include the following:

  • Staff costs specific to the project
  • Outsourcing or subcontracting costs up to 65%
  • Specific software
  • Specific materials or consumables
  • Fees for testers for your new or enhanced product

How to submit your R&D tax reclaim

Your R&D Tax reclaim is carried out when you submit your CT600 Tax Return. You can make a claim up to 2 years after the end of the accounting period it relates to, although we would advise your claim sooner, so you are clear on the details.

Before you submit your CT600, you should add information and supporting evidence via the HMRC online portal to support and calculate your R&D tax reclaim figure. You will need to work out the costs that are “directly attributable to R&D”, remembering to reduce any outsourcing costs down to 65% of their total. Then multiply this figure by 130% to get the total deduction amount. This figure should be entered into your tax return as an addition to your original R&D expenditure figure.

Next Steps

If you are unsure whether your e-commerce store has qualifying expenses for R&D tax relief or would like help with any other aspect of accounting for your e-commerce store, get in touch with our team.

The best time to act is now.

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