Identifying Eligible Clients in the Wholesale, Retail Trade & Repairs Sector | Q&A
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A big thank you to all who came to our “Identifying Eligible Clients in the Wholesale, Retail Trade & Repairs Sector” webinar earlier this month!
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Now, without further ado…
1) We have a client who is using multiple online platforms and their own website to sell intricate high-cost items online. They are creating their own Automated Stock Control system because the multiple platforms are in competition with each and are rival platforms which do not work together. Therefore, to automate their system needs a bespoke software automated stock control system which does not exist elsewhere. Even though the core business is online retail I am assuming the bespoke automated stock control system is eligible.
This is another of those ‘it depends’ answers. Fundamentally, it will come down to whether the automated stock control system requires advances in software science to be made to be successful. Assuming that it did, and the company has employed competent professionals in the area of software development, there’s a good chance that the work would be eligible.
2) If a part is not available for an old vehicle, the technical details are not available and parts are hard or non-existent to find a replacement, would the retro engineering of the part be an eligible project for R&D?
Possibly! Given that the part is no longer available and the technical documentation non-existent, there’s definitely an argument that the solution is not readily deducible. However, if the company could look at the part and work out, using their knowledge and experience, how to engineer it with a little trial and error, then you’d be hard pushed to argue that the work constituted an advance in science or technology. However, if they had to advance engineering in some way to successfully produce the part, then there’s a good chance that the project would be eligible.
3) Why is “bespoke” a red flag word for HMRC?
It’s less about the actual meaning of the word, and more about the context and implication when it’s used! For example, Formula 1 cars are bespoke, in that they are developed for a specific customer and purpose, but the development of these cars will almost certainly involve a lot of eligible work. However, HMRC tend to assume that bespoke is being used literally to mean produced for one specific customer, and therefore assume that the product is not being completely re-engineered, but more tweaked and optimised, which wouldn’t be eligible.
4) How do you demonstrate a negative? For example, how can we demonstrate there was nothing on the market at the time the project was kicked off?
Good question! It is really hard to prove a negative, but all HMRC expect, and want you to be able to demonstrate, is that the claimant company did their due diligence before starting the project. This might take the form of meeting minutes where these research findings were discussed and the go ahead for the project given, or even project notes that set out what was available in the marketplace and why it wasn’t suitable.
5) You mentioned being careful with software development—how about if a client has two software systems and needs to write some software code to link the two systems so that they work concurrently?
Software integrations are an interesting subject at the moment. Ten years ago, you’d be almost guaranteed to find eligibility on these kinds of projects—tools to aid integrations in their infancy, and API documentation was scarce to non-existent. However, we’ve come a long way since then. Integrating disparate software systems has become commonplace, and there are several third-party integration services available. All this has meant that this type of work has become more and more standardised and, therefore, less eligible.
What this means is that, generally speaking, integration projects are unlikely to be eligible for R&D tax relief unless it involves integrating two pieces of software that have never been integrated before, and that have little to no API information available.
6) With genuine advancements in software developments, how do you distinguish if it is the company or the software developer who should claim?
This is a tricky one! In most cases, it will come down to the contractual arrangement between the company and the software developer. If the company has asked the software developer to develop new software, and they know that eligible R&D is needed and this need for R&D is clear in the contract, then it would be the company that made the claim.
On the other hand, if the company simply asked the software developer to deliver a system with a list of features, and the company was unaware that R&D was taking place to deliver these features, then you’d be hard pushed to justify their making a claim. In real-life, however, the reality falls between these two extremes, and you have to consider factors like the contractual arrangement, where the competent professionals are, and who knows about the technical advances being made.