Case Study

Net World Sports demonstrates online retail is deserving of R&D tax credits

Net World Sports Limited (“NWS”) is a forward-thinking online sporting equipment retailer undertaking R&D activities to better its products and platform.
Net World Sports demonstrates online retail is deserving of R&D tax credits

Client

Net World Sports Limited

Industry

Software

Cash return

£615k (to date)

An introduction to Net World Sports Limited

Net World Sports Limited (“NWS”) is a forward thinking online sporting equipment retailer with global reach. At its very core is an ethos of revolutionising the buying experience and fulfilment capabilities across all types of sporting equipment from the small to bulky. 

To drive forward its business, which incorporates multiple Ecommerce derived sales channels (company web stores, Amazon, Ebay etc.), NWS directly employs in-house developer resource, which is supported by specialist development agencies where necessary. The ongoing development of software platforms, front end web-based interfaces, tools to deliver multi-faceted and real-time run environments and integration layers to bridge technology gaps for off-the-shelf system architectures and/or unsupported system functionality is relentless.

NWS had already made R&D tax credit claims for 4 accounting periods prior to me being introduced by their accountant. Their accountant was concerned that the quality of the supporting R&D reports was not where it should be and questioned whether the full breadth of qualifying project work and associated expenditure was being identified.

I met with the business owners in August 2018. Having reviewed their submitted R&D reports, I did agree that they were not robust in terms of how well: the project work of NWS was linked to the guidelines, the explanations of how their work advanced baseline knowledge or capabilities was articulated; and found errors in the expenditure types being claimed for. 

NWS decided to work with me to prepare their September 2017 R&D tax credit claim, which was put together in 4 weeks to meet the corporation tax filing deadline of September 2018 at the client’s request.

NWS chose to continue working with me and we have gone on to prepare a further 3 R&D tax credit claims together so far. 

Net World Sports' eligibility criteria

UK company with a relevant trade

NWS is a UK Limited company within the scope of charge to UK corporation tax. 

NWS develops technological capabilities in IT relevant to its Ecommerce business – the life blood of its trading activity.

Tax technical point: If your organisation is classed as an SME for R&D tax credits and engages a specialist third party to undertake some or all of the development work on your behalf, then it is likely that much of the fees paid for this work can be included in your organisation’s R&D tax credit claim.

Purpose

NWS extends knowledge and capabilities in relation to IT to deliver functional and performance related goals essential for the success of its business. NWS works relentlessly to continuously improve the sophistication and reach of its business systems and proactively manage the scale and complexity of its Ecommerce sites. 

Focus

Through its work, NWS meets a key requirement of the R&D tax legislation: to seek an advance in technology.

There are a number of ways the BEIS guidelines for R&D recognise an advance and it’s not possible to say one is uniquely right i.e., an advance can be defined in more than one way.

Over the years, many advances have been attempted by NWS, a couple of these have been selected below by way of example to illustrate how an organisation can think about linking these to BEIS guidelines for R&D:

  • Improving something that does exist (para 9(c) of the BEIS guidelines): NWS set out to expand the capabilities of the Magento 1 platform to accommodate more fluid workflow protocols, facilitating significantly greater flexibility in customising functional parameters and attributes to support a number of underlying business requirements. Capabilities to leverage marketing collateral, migrate multiple websites into a single multi-store interface, techniques to instigate vast system wide changes from a single source at speed and unified integrations of third-party services to render as a proprietary interface were not available in the out-of-the-box software.
  • Duplicating something in a fundamentally different way (para 9(d) of the BEIS guidelines): Extending the parameters of the Microsoft Navision and Microsoft Dynamics 365 platforms to achieve a seamless interface across its legacy business systems (themselves proprietary in evolution), website integrations and third-party service and sales channels with enhanced bespoke capabilities, protocols and features to be introduced through tailored development work. The ERP software could not function as required without making deeply embedded and fundamental changes to the standard enabling technology.

Problem solving

Seeking an advance in science or technology as outlined above is just one part of the requirements. Your organisation will also need to demonstrate that the solution was not available by reference to baseline knowledge and capabilities in your industry as a whole. Your organisation will be iterating from known principles and approaches to create or extend knowledge and capabilities that represent genuine and non-trivial betterment.

The presence of scientific or technological uncertainty is key, meaning that knowledge of whether something can be done or how to achieve it in practice is not publicly available or easily arrived at from what baseline knowledge is available in the public domain. This is a judgement call by a professional in your industry with relevant and appropriate knowledge and experience.

For most organisations, this will be a judgement call from the technical staff working on these projects, in NWS’ case, two of the lead in-house software developers and a supporting infrastructure software developer/systems engineer. I worked with these technical staff and finance staff to help them understand and properly assess the challenges faced by NWS in its work. 

Together we discussed the key unknowns, the strategic questions asked as part of assessing whether objectives would be feasible for development or how to achieve things in practice – How? Would? Could? Whether? What? By way of example, taking the example of improving the capabilities of the Magento 1 platform, NWS considered its development path in terms of:

  • Would it be possible to restructure the database and codebase to achieve a versatile and interdependent hierarchical structure linked to a store view for selected functional tasks, reporting and communications?
  • How to evolve multiple iframe templating processes and formats to accommodate the dynamics of unique layers of data controls, rendering insertion and seamless customisable interdependent links between enterprise source data accessed by a third party?
  • How to improve the resourcefulness and reach of cross functional automated processing, rendering and offline editing tools?
  • How to duplicate the developing functionalities, performance improvements and features of the multi-store websites in a fundamentally different way to ultimately migrate to the Magento 2 Framework?

Basis

NWS’ work relies on applying knowledge in software development and software engineering to iterate methodologies, approaches and techniques to produce new or improved capabilities by reference to the underlying technologies collectively and uniquely employed for the purpose and focus of the advances sought.

Financial Outlay

NWS incurred in-house direct R&D costs on:

  • Employed staff. 
  • Annual software licence fees for software used to develop its solutions, such as Microsoft’s developer licence.
  • Consumables costs such as IT related accessories to build prototype systems for testing purposes.
  • Utilities costs such as water, gas and electricity.

NWS incurred subcontracted out R&D costs on:

  • Third party development agency with specialist expertise in Mircosoft Navision for ERP systems.

Cash resources returned

The total cash benefits received from 4 consecutive R&D claims equate to c.£615k.

Think you have an R&D claim?

If you’d like to discuss a potential R&D project, book a call to explore your eligibility and start your tax claim journey.

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