Innovation and developing a personalised shopping experience are likely to be the key to success.
The digital and e-commerce sectors have boomed during the Covid-19 crisis. Although there was already a trend developing of customers preferring to shop online, the pandemic has accelerated this shift due to the inability of consumers to physically visit shops and retailers.
As lockdowns have become a very regular occurrence across the globe, businesses and consumers are increasingly leveraging digital technology to provide and purchase more goods and services online than ever before, which has raised e-commerce’s share of global retail trade to around 17% of all sales in 2020.
Businesses which already had strong e-commerce offerings such as Amazon and ASOS have been able to thrive from the beginning of lockdown, whilst others have scrambled to adapt to the new trading environment. This challenging period has shown that e-commerce is no longer an optional extra – it is an essential offering to a retailer’s survival.
In the retail environment, many businesses have learned that digital transformation and innovation is critical to the future of their trades. A large part of this change will be clear to consumers through the use of virtual showrooms, 3D product visualisations and communication through instant messaging technologies. There has also been a significant level of development in retail business processes to improve the end to end sales and delivery experience.
All of the activities above are likely to have some form of R&D activity to enable the solution to be delivered. Therefore, it is important for retail companies to consider whether their digital transformation and e-commerce activities could be eligible for R&D tax credits.
R&D tax credit regime
A common misconception we have consistently experienced is that businesses in the retail sector dismiss R&D tax relief in the belief that they “don't do proper R&D” and therefore do not qualify. However, the HMRC definition of R&D for the purposes of claiming tax relief is designed to support businesses of all sizes and industries, which means that R&D tax relief can apply more widely than for the invention of a new cutting-edge technology or the work of scientists in lab coats.
Listed below are a number of examples of activities which could potentially qualify for R&D tax relief. Please note, this is not an exhaustive list; it should demonstrate the breadth of different activities which could qualify:
- Virtual product configuration – creating 2D or 3D visual environments to provide a customer with a virtual example of a product (i.e. a virtual car showroom, 3D visualisation of shoes and clothing etc.);
- Improvements to online Chatbots, allowing customers to receive an immediate and personal responses to their queries without the retail company increasing their sales team;
- Product inventory management – the digitisation of product inventory and development of a system to manage the sales process;
- Business management – developing better sales and business management reporting technologies to improve internal reporting functionality;
- Innovative reconfiguration of production lines or manufacturing methods to accommodate social distancing and supply chain shortages;
- Creation of Covid-safe sales environments – new store designs and furniture which mitigates coronavirus transmission, such as the development and incorporation of new air conditioning technology to clean air inside a store;
- Researching and developing specific acoustic systems to enable their stores to offer customers different environments within one shop;
- Development and incorporation of technology within physical stores that enables the shop TV monitors to show products / deals that are most applicable to the demographic of customers within the shop at any one time;
- Development of technology that allows customers to purchase items without having to visit a checkout or use a self-service till, as incorporated within the Amazon Go store in Seattle;
- Creation of bespoke lighting structures and systems to showcase specific products within the store;
In summary, if your business made (or tried to make and was ultimately unsuccessful) a technological improvement to a product, process or service that did not have an immediately obvious solution when you started to investigate how to change it, and there was genuine uncertainty about whether/how the advance could be achieved, there should be a basis for making an R&D claim. Indeed, past failures to change products, processes or services are often a good indicator that R&D exists, even if it is not called that.
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We have extensive experience in delivering practical advice, offering commercial experience and helping retail companies navigate the complexities of the UK and international tax systems, whilst also making successful and robust R&D claims for clients.
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If you would like to find out more about the benefits of R&D Tax Credits, including the eligibility criteria and the process of making a claim, please get in touch using the contact details below:
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