Banner image of whether or not Digital Agencies qualify for R&D

Identifying eligible Digital Agency clients 

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Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the latest of this series, we’re looking at digital agencies. As with our previous subjects, the level of eligible R&D to be found in this area is misunderstood, and very often overestimated. However, if you know what you’re looking for this can be a good area to look for eligible clients.

What to avoid

What not to look for: Social Media

As with our previous subjects, it’s worth taking the time to first think about the types of digital agencies that don’t do any eligible work. As with other service-based companies, most of the core work done by digital agencies is not eligible for R&D tax relief. This includes the design and management of PPC campaigns, and the management of social media channels and advertising. These activities don’t require advancements in science or technology and are therefore not eligible.

What not to look for: SEO Optimisation Agencies

Beyond this, agencies that focus solely on Search Engine Optimisation (SEO) are often far less eligible than you might expect! Analysing and adapting websites to improve SEO performance is out, as it tends to use standard tools and techniques. Similarly, working out the impact of and how to overcome changes in search engine algorithms is not automatically eligible, as it can often be done using current knowledge and standard processes.

Ok, so what should I look for?

So, now that we know what ineligible digital agency R&D work looks like, what areas should you be focussing on?

Data Analytics and Big Data

What to look for: Big Data

Companies developing new, high-performance algorithms to analyse the huge volumes of data generated by marketing agencies are often eligible for R&D tax relief. These digital agencies often have a team of mathematicians and data scientists, and work on developing innovative tools for other digital agencies to exploit.

Development of software tools

What to look for: Software InnovatorsFollowing on from work done on analytics and big data, digital agencies often carry out qualifying work in the area of software development. The development of new software tools to enable, for example, the integration of disparate social media channels would be eligible for R&D tax relief, as long as it requires advances to be made in software science.

Software tools that incorporate advances in data science, for example the creation of tools that enable digital agencies to exploit the big data algorithms developed by their data scientists, are often eligible.

Virtual Reality

What to look for: Virtual Reality

At the very cutting edge of digital agency work are those agencies working to extend and improve the use of virtual reality to create completely immersive experiences. This requires, for example, the creation of software capable of processing and displaying hundreds of images at the same time to create a fully 3D world, whilst also allowing the software to be run on standard hardware such as mobile phones.

SME scheme or RDEC

When analysing the work done by your digital agency clients, it’s worth taking the time to think about how they structure their work, and which elements of the work can routed through which R&D tax scheme. Digital agencies are often contracted by their clients to do R&D on their client’s behalf, and the costs of these projects would have to be claimed through the RDEC scheme. However, the types of work discussed above are usually done in-house on the agency’s own behalf, and can be claimed through the SME scheme.

How to write an R&D tax relief technical narrative

With HMRC’s new mandatory requirement for project descriptions on all submissions, we wanted to share our experiences to help others to write their best possible technical narratives.

Available to download here.

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