R&D relief not only for scientists and inventors, or how to take advantage of relief in the creative industry

The essence of R&D relief

At the beginning we will explain what really the R&D relief is. To put it as simply as possible, R&D relief is a relief for research and development, which consists of the possibility to recognize a given cost as a tax-deductible expense twice. In other words, it is a double ‘costing’ of the same expense – first it deduces revenue, the income. Moreover, some costs can be deduced even at 200%. This makes it possible to significantly reduce the tax, or in some cases even to eliminate it altogether.

It is worth noting that from 2022 onwards, the R&D relief may often go hand in hand with the IP Box relief, as from that year it has been made possible to use both these reliefs simultaneously. If an entrepreneur commercializes results of the R&D works and generates specific income from them, not only can he take advantage of the R&D relief by settling specific expenses more than once in his tax account, but in addition income calculated this way can be taxed preferentially using the IP Box. There will be a separate article on the IP Box topic.

A relief for research and development applies to both CIT and PIT taxpayers (taxed according to a scale or flat rate). To be able to take advantage of relief, one has to conduct research and development business, which does not necessarily have to involve creating any invention. The development and marketing of new or significantly improved products and services, among others, may be such an activity. What is important, they may be innovative (new) only within the scale of a given enterprise. Then, from the costs related to such activity one has to identify the qualifying costs – because only these can be deduced twice. These are:

1. Employee salaries and social security contributions related to R&D activities (including employments contracts, contracts of mandate and specific task contracts),
2. Acquisition of specialized equipment, materials and raw materials related to R&D,
3. Expert opinions, advice services and purchase of research results from scientific institutions,
4. Charges for the use of scientific and research equipment,
5. Costs of patents, utility model protection rights or industrial design registration rights,
6. Depreciation and amortization of fixed assets and intangible assets used in R&D activities.

From 2022 the deduction of qualifying costs related to R&D employee salaries is 200%.

The aforementioned costs, as deductible expenses, will first reduce the income, and then, thanks to the R&D relief, they can be deduced a second time – from the tax base.

What one should keep in mind?

• If it is not possible to deduct the full relief due to the loss or insufficient income, the following is possible in relation to the unused portion of the relief:
  • Settlement over the next 6 tax years
  • Direct refund of the unused portion
  • Non-payment of income tax advances for some employees (relief for supporting innovative employees)
• The right to relief has to be documented – one has to precisely separate every cost of the R&D activity in the accounting records kept.
• Deductions are made in the tax return for the tax year in which the eligible costs were incurred.

R&D in the creative industry

R&D relief is commonly associated with the most innovative entrepreneurs, programmers or research and development centers. However, as we already indicated above, this relief is not reserved only for such undertakings. In practice most businesses which create or improve their products, services or technologies can meet the definition of R&D activity.

Here are a few examples of how relief in the creative industry can be used:

• Film, television and animation production: investments in new film technologies, advanced special effects, new animation techniques, innovative postproduction methods, motion capture, 3D rendering, the development of new sound processing and editing techniques, or new narrative formats
• Advertising and marketing: creating new analytical tools, algorithms, campaign management platforms, innovative advertising formats, campaigns using unusual research techniques or data analysis, works on graphics generators
• Music and sound: developing new technologies for recording, mixing or creating sounds, research on the impact of sound on emotions and perception
• Fashion and design: research and investment in new materials, clothing production technologies or innovative design methods
• Computer games: development of new game engines, algorithms, artificial intelligence, innovative gameplay mechanics or advanced 3D graphics and animations

How can we help?

As part of our cooperation, we can analyze your business to identify areas and opportunities for applying R&D relief, as well as prepare your business for its implementation. We will gladly help in identifying qualifying costs, we will apply for an individual tax interpretation and support your accounting department in preparing the relevant documentation and records. We also offer support in the event of any verification, inspection or tax proceedings.