Identifying in-eligible clients in Wholesale, Retail and Repair companies
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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. Previously, we’ve tackled the sectors where you might be less likely to find eligibility, but now we want to tackle the top five (according to HMRC’s stats):
- Information and Communication (Software)
- Professional, Scientific and Technical
- Wholesale & Retail trade and repairs
Having recently covered software, construction, manufacturing, and professional, science and technical, this time we’re looking at companies with wholesale and retail trade and repair of motor vehicles and motorbikes SIC codes. In common with the rest of the top five, the level of eligible R&D to be found in these types of companies is misunderstood and can be overestimated.
In fact, most of the companies under this classification (it’s too broad to be a sector!) will land more towards the ineligible end of the spectrum. The difficulty here is that the classification is very broad, and the majority of sectors under this umbrella are unlikely to have any grounds for claiming. So, as we did for Professional, Scientific and Technical companies, we’ll address this one sub-classification at a time!
Agents involved in the sale of goods
Starting with probably the least eligible subsection of this classification, let’s address the activities of sales agents. These companies act on behalf of others, especially in overseas transactions. They will maintain databases of sellers and buyers, and previous deals and negotiations. However, by definition, they will not be involved in the manufacture of goods, nor the transportation or direct sale of these goods. Reflecting on this alongside HMRC’s criteria for eligibility, it’s hard to see what eligible work they could be carrying out. They may be making commercial or logistical advances as part of their negotiations, but these are highly unlikely to involve making scientific or technical advances, and even building and maintaining databases is very unlikely to be eligible.
Wholesale and retail sale of non-food items
Moving ever so slightly closer to eligibility, the next subsection to consider is the sale of non-food items, both wholesale and retail. Again, in the absence of any manufacturing activities, it’s unlikely that companies selling non-food items will do much, if any, eligible work. For the core activities of wholesale and retail sale companies—transport and logistics—actual sales are highly unlikely to qualify for R&D tax relief as they don’t require the company to advance science or technology.
However, there are a few areas worth investigating. This might include, for example, the tracking of goods as they move through the sales process—if the company uses RFID tags to identify goods and track them along the process, and it is required to advance software science or electronics to do this, they might be able to claim. Another area to assess would be whether the company is required to store the goods in a protective atmosphere, and how difficult it was to achieve this.
Retail sale and repair of motor vehicles and motorbikes
Similar to the above, it’s unlikely that companies focussing on the retail sale of motorbike and motor vehicles will be doing any eligible work—there’s nothing in the core activities of these businesses that requires advances to be made in science or technology. However, this subsection ranks higher due to the potential for eligibility in motor vehicle repair.
The repair of motor vehicles has potential eligibility in two separate areas—very old cars, and very new cars! The renovation and maintenance of vintage cars can involve, for example, reverse engineering parts, retrofitting modern parts to older vehicles that they were not designed to work with, and producing paints and coatings that match modern performance with vintage aesthetic effects. At the other end of the scale, repair and maintenance of newer cars can be challenging for repair organisations, especially where manufacturers have not made information available as to how the vehicles operate. In both scenarios, where advances must be made in technology or science to achieve a successful report, there could be potential to make a claim for R&D tax relief.
Wholesale and retail sale of food
Finally in this classification comes the wholesale and retail sale of food, coming in higher in the potential eligible R&D ranking due to the much higher likelihood that companies in these sectors will have to contend with complications of storage and management of perishables. Some of this won’t be eligible, such as the development of improved logistics for cold-chain goods, but some could potentially be eligible, for example the development of more efficient cold storage units for retail shops. However, as with everything we’ve described above, you must be completely clear what advance was required in science or technology for the project to succeed before claiming for any work.
A note on software development projects
The eagle-eyed amongst you will have noticed that we haven’t mentioned software development in any of the above sectors, and there’s a good reason for that. Much as any of the companies described above could have carried out a software project, our advice for this is the same as always—be very careful! While all of these types of companies are likely to be consumers of specialist software, any project focussed on the installation and configuration of software won’t be eligible. Even where the company has commissioned bespoke software, this is unlikely to be eligible unless the developers have had to advance software science in some way.