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eCommerce R&D — R&D tax credits for online retail companies

Phil Smith CTA
Technical Lead
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ecommerce R&D through gift tags

R&D in eCommerce

eCommerce is an exciting and, at times, difficult distribution channel to master. Get it right and your business is connected instantly to a market worth $118 billion in the UK (based on 2021 sales).

With stakes so high, businesses that invest in eCommerce capability, first of all, need it to work. And to work quickly, securely and reliably. If it doesn’t, customers will simply go elsewhere.

Then there’s the bells and whistles: sophisticated functionality like customer recognition; content personalisation, and A/B split testing of enhancements that determine which content and user journey converts the most traffic into sales.

There is already so much scope for research and testing to optimise your site or processes —and new technologies emerge all the time. Think tech like Virtual Reality (VR) and blockchain.

R&D tax credits for eCommerce companies

Amazon inevitably leads the way for research and development (R&D) spending in eCommerce. It’s estimated they spent $56.05bn in 2021 (officially the number one R&D spender in the world, surpassing Volkswagen.) Few businesses will ever match that sort of spending, of course, but R&D is not just for large companies.

If your business has an eCommerce capability, an eCommerce platform or you build functionality for eCommerce websites; you may be surprised to find that some of your costs could meet the definition of R&D. eCommerce projects often qualify for R&D tax credits – a cash boost that can be used to help drive your business forward.

What are UK R&D tax credits?

R&D tax credits are a valuable source of funding for UK companies that invest in innovation. They are claimed retrospectively as part of your Corporation Tax return and give you a cashflow benefit.

For SMEs, this is worth up to 27p for every pound that you spend on research and development. To meet the definition of ‘research and development,’ your project needs to be: ‘Seeking a scientific or technological advance’ in your field. You have to have been ‘Unsure of the outcome.’ You can even include projects that were not a success.

For an online retail business, these advances will probably come into play as soon as you begin developing your own bespoke systems. Or even when you start modifying off-the-shelf software — so long as it’s ‘transformed substantially’ beyond existing capabilities and not just configured for your work.

Benefits of claiming R&D tax credits for eCommerce

For most SMEs who claim them, the value of R&D tax credits is often profound.

You get funding without sacrificing any equity in your business and you are free to use the money as you wish. But it is common for R&D tax credits to be reinvested in R&D by hiring new technical staff, taking on riskier projects or investing in equipment. This leads to further R&D claims in future years, so a virtuous innovation cycle is created.

How to create a culture of R&D in your business

Fuelling the growth of your business, R&D tax credits can play a key role in creating an inspiring and dynamic workplace full of technical expertise. This can help you hire great people and develop them into the best talent.

eCommerce technology

So what kind of technologies are we talking about when it comes to innovative eCommerce platforms? The most fundamental is your website. You choose a generic software package that happens to suit your needs. But it does not take much complexity for you to require modifications to integrate it with your business.

These could include customer authentication, stock control, and integration with your back-office systems. Work in this space could well start to include R&D. And if you are building from scratch, it is even more likely.

Beyond this fundamental activity, eCommerce-enabled businesses may venture into sophistications including: customer recognition and personalisation, virtual reality and augmented reality try-before-you buy, shopping basket and payment enhancements and improved cybersecurity.

You may be developing these technologies as a supplier to eCommerce platforms rather than being an eRetailer yourself.

Qualifying R&D costs in eCommerce

R&D tax credits are calculated based on a proportion of your costs incurred during qualifying activity.

The most significant cost is normally the employment costs of people carrying out R&D. In eCommerce this will likely be software developers, but you may also be able to include a proportion of other workers in the business.

It is not just PAYE salaries of employed people, but their employer pension and National Insurance contributions too that can be included. A proportion of money spent on relevant sub-contracted work is also eligible.

Once these have been accounted for, other potential expenditure to include would be certain software costs, and some of your utility costs like heat, light and power which relate to the R&D activity.

It’s usually quite easy to ‘get one’s head around’ costs like those. But what we often discover is eCommerce businesses find it harder to match qualifying costs to qualifying activities. Not to mention those that “Attempt to resolve scientific or technical uncertainties”.

Let’s look at some technologies where R&D is likely to be present, and real-world examples which might qualify.

eCommerce innovation


Personalisation – the tailoring of what each individual sees when they land on an eCommerce site – is a huge opportunity for online retail businesses. It allows you to efficiently maximise the chance of a sale, cross sell and up sell.

It is a lot to do with eCommerce user experience innovation and could involve building a recommendation engine, integrating a SaaS solution (so long as it is modified substantially beyond existing capabilities and not just configured for the company its intended for) or developing personalisation features directly into your CMS.

Kentico, a leading all-in-one CMS, eCommerce and online marketing platform, provides tools which allows online retail businesses to tailor the content on their sites. This personalisation is based on parameters like search terms, referrers, user behaviour and geo location. Sitecore, another advanced content management system, offers similar functionality.

Integration of advanced systems like these, or development of your own recommendation or personalisation engine that goes beyond basic algorithms would be an area where R&D may be occurring.

An area of personalisation which is of particular interest from an R&D perspective is artificial intelligence (AI). UK-based Thread is an interesting company in eCommerce fashion innovation. They use AI to help men choose clothes that will suit them.

The company requests some personal information provided by shoppers (what’s in their wardrobe, sizes etc.) and then uses machine learning to pull product data from its clothing partners. This helps customers find clothes that they like which fit and are in stock – significantly improving the buying experience. In the future, the AI may be able to consider other data like the weather to further personalise the service.

Big data

Big data presents both an opportunity and a threat to eCommerce businesses. On the one hand, the insights that can be gleaned from it can be invaluable in helping drive marketing initiatives like personalisation. For example, by making tailored product recommendations.

On the other hand, this asset could become a liability that needs to be managed, organised and held securely – especially considering GDPR requirements.

Your work in managing big data is certainly an area that you should look at to see if it counts as eCommerce R&D. For example, did you have to make significant bespoke system requirements to comply with the GDPR rules on people’s right to see what information you hold on them?

Or are you integrating an opensource framework like Apache Hadoopinto your systems to analyse your data? If it is complex work where you are resolving technological uncertainty it could be R&D.


It has been exciting to see virtual reality (VR) and augmented reality (AR) take off in recent years.

As the technology develops, online retail will be a natural deployment space for VR as companies vie for eCommerce disruptive innovation. VR will enable you to immerse customers in the shopping experience, replicating (and even improving on) how people have shopped in bricks and mortar stores.

eBay combined with Australian retailer Myer to create the world’s first VR department store in 2016.It allows users to select their areas of interest and build a virtual store relevant to them; browse products in 3D; quickly move between different departments; read detailed product information and, of course, make purchases.

Any similar work you’ve undertaken in this area is likely to be highly innovative and would definitely be considered for R&D tax credits.

Payment technology R&D

Seamless payment processing is an important area of research and development for companies with eCommerce websites. They will often outsource this part of their website to established payment vendors who will conduct their own R&D to keep their payment products at the cutting edge.

Developing payment gateways that are able to take payments from all world markets is a particular problem. Reducing friction at the payment stage is a key way in which companies can optimise their digital commerce sites.

E-wallets are one solution that offer interesting possibilities for an innovative eCommerce platform. Apple Pay and Samsung Pay are big players here, but other global financial services companies such as MasterCard and PayPal are also making moves with e-wallets.

And, of course, there are digital currencies like Bitcoin and the underlying blockchain which may turn out to be the optimum payment option in years to come. If you are doing work to see how these types of technologies could be utilised in the future, then this could well count as R&D.


Cybersecurity affects us all but poses particular threats to online retailers. There are heightened risks of online fraud, hacking, and theft of confidential data. Some of the defences against cybersecurity risks are improved data encryption, customer authentication and authorisation.

An emerging technology in this area is biometrics – the use of fingerprint, iris and voice recognition authentication. These are regarded as superior to traditional passwords, as they can’t be lost and are harder to steal or forge. But they come with technical challenges in integrating these into your eCommerce site. These challenges could involve both software and hardware.

As it’s such a specialist area, it will often come down to a third-party company to develop biometric solutions. An example of a company doing pioneering work with this technology is Onfido. They have developed an identity verification engine which works with enterprises via application protocol interfaces (APIs) and software development kits (SDKs). Their facial check product uses cutting-edge computer vision techniques to provide advanced fraud detection.

If you are developing biometric technology for eCommerce websites, make sure you are optimising your R&D tax credit claims.

Web development

There are a number of advanced web developments you could make that would be prime contenders for R&D. The more bespoke and complex, the greater the chance of R&D. These include:

  • Voice search
  • Super-sized sites with multiple third-party integrations
  • Advanced search functionality with complex algorithms
  • Inventory systems
  • Customisable products
  • Chatbots
  • Mobile optimisation including site speed and UX

Developing any of the above eCommerce technology yourself — or overcoming technical uncertainties integrating third-party versions into your e-tailing website — would be a strong indication of R&D activity.

Do you innovate for eCommerce?

If you have an innovative eCommerce website, or develop functionality for such sites, you should be exploring R&D tax credits. Especially if you are working with any of the above technologies.

ForrestBrown are the largest specialist UK R&D tax credit consultancy. Our R&D technology specialists and large team of chartered tax advisers can help you with an R&D tax relief claim.

The robust methodology we have developed for claiming R&D tax credits optimises your claim. It captures all qualifying activity and backs it up with evidence to satisfy HMRC. We can work independently or alongside your accountant.

We’ll also advise you on ways you can enhance the impact of future claims through better processes and record-keeping.

More R&D tax credits mean better cashflow and the chance to invest in new staff and further R&D. It all adds up to a more successful eCommerce business for you.

Call our expert team today on 0117 926 9022.