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Markel Tax

21 Feb 2018

Making tax fashionable

The tech craze has been growing worldwide for decades and fashion is finally joining the fray. Fashion related industries are seeing rises in innovation and collaboration within the tech space, dominated by software development.

We are already seeing the first results of these collaborations; there are around 10 million wearable devices in use in the UK alone, and this number is expected to triple over the next four years to almost 33 million.

All evidence points to a successful future for tech-focused fashion and retail, and from a tax point of view it can be very rewarding too. In the past this has mistakenly not been considered as an area of research and development (R&D), but in reality, the tech-based fashion sector is very relevant to the UK R&D tax credit incentive.

The rewards from tech-focused innovation are not limited to the retail side of fashion either. There are amazing things happening in the development of new fabrics and the construction of garments, driven by the use and incorporation of technology. If your company is developing or modifying products, processes or services in textiles, fabrics or clothing, you could recoup up to 33p for every £1 spent on your innovation. 

Companies in the UK are rewarded by the government through the R&D tax credit incentive. This recognises the wider benefits to the economy of companies making technological advances, and provides a financial benefit to those claiming. 

One of our clients was looking into the development of a lightweight windproof garment which would be suitable for trail runners and ultra-distance athletes. Often when training and competing, trail runners will carry only a bum bag style pack or a very lightweight ‘vest’ pack, with a maximum capacity of a few litres. Within this they need to be able to carry all the kit they require for a full day in the mountains.

The functionality of windproof garments is highly desirable because they are more breathable than waterproof layers, allowing the micro-climate between the wearer and garment to be regulated more effectively. This makes them perfect for stop-start high aerobic activity; the garments protect from wind chill but reduce the risk of overheating and this client sought to develop and produce the lightest weight windproof full-zip jacket on the market. 

The company experienced numerous design challenges on this development. The developers attempted to minimise the trim componentry on the garment to the absolute minimum, without compromising the functionality of the garment. For example, making an over the head ‘smock’ style garment would have achieved a lighter weight overall but the functionality is not ideal for an ultra-distance runner when rapid on/off of the garment is required. The company had to analyse every element of the garment’s composition to try and reduce weight down, to small design aspects such as the care label and the logo transfers.

Also successful in qualifying for R&D tax relief was the creation of a wearable location device.

This was designed with the elderly in mind and, specifically, Alzheimer sufferers. The wearable device would be able to reliably locate the wearer, both indoors and outdoors with additional useful functions incorporated. 

The device is a more personal and advanced version of traditional panic alarms that are mainly used in cases of trips or falls. The device has a number of unique features developed by our client. 

This includes:

  • Remote monitoring of the device by friends and family using cloud based software. Including GPS location and movements to determine where an individual is and if they are in motion (a standalone GPS location in a park is not helpful if the person is at risk of falling. The data needs to show whether the person has stopped moving).
  • A push facility for approved remote users to send alerts and reminders to the user. This may be a reminder to take medication or something similar. 
  • Alerts from the device if the user goes out of a certain defined area.

The Markel Tax R&D team includes Chartered Accountants, Chartered Tax Advisers and PhD specialists. The case studies referred to in this article are good examples of where we have worked with our accountancy clients, in order to maximise the R&D claims of their own clients. No other R&D tax advisory firm has the combined experience of Markel Tax.

If you would like to discuss the content of this article further, please email the author, Hannah Sparrow.
Tagged R&D tax relief
Next article in series

21 Feb 2018

Tax advice: Help to Save scheme, status decision and inheritance tax

Every year our tax and VAT helplines receive over 55,000 calls. Each month we provide a round up of topical news, below is a short summary of the key points our team has been discussing with accountants in February.

Strategic partners

  • Tolleys
  • Institute of Financial Accountants
  • BTC Software
  • AccountingCPD.net
  • Lovell Consulting