Film and Media Industry R&D Tax Credits
This case study exemplifies the application of key legislative requirements for eligible R&D activities as they apply to relevant activities in the film and media industry.
ViewLine Productions (ViewLine) is an American, full-service media company specializing in film production and interactive media integration. As part of the film and media industry, ViewLine Productions is constantly focusing on new product development to remain competitive in the field. It is regularly conducting R&D activities to come up with new technologies to produce the highest quality media products.
To keep up with client demand and the competitive nature of the industry, ViewLine Productions began to reinvent their equipment to produce highly innovative products, special effects and alternative delivery channels.
ViewLine Productions had never claimed the R&D tax credit before, and was unaware that it was performing qualified research and development. To be eligible for the credit, ViewLine had to satisfy four main criteria, known as the 4-Part Test. After consulting a specialist, ViewLine realized it was eligible for the Research and Development Tax Relief Scheme.
ViewLine’s Eligible R&D Activities
The R&D tax credit specialist helped ViewLine determine its qualifying R&D activities, many of which were part of the company’s daily operations. ViewLine’s qualified research expenses (QRE) included:
- Development of new or improved products to meet changing consumer preferences;
- Development of visual effects and animation;
- Development of new media asset management systems;
- New software technologies for computer gaming;
- Improving web-based systems and interactive media.
ViewLine claimed the federal R&D tax credit and was granted more than $150,000 in credits. A sustainable methodology was also established to help the company identify, document and substantiate eligible R&D projects and costs on an ongoing basis.
QUALIFIED RESEARCH DEFINED
Qualified R&D projects consists of research for the intent of achieving an advance in overall knowledge. Advances in capabilities in the field of science or technology through the resolution of scientific process or technological uncertainty general qualify as R&D project. The advancement but not simply be in its own state of knowledge or capability. A companies R&D project must relate to the trade of the business whether it be an existing product or process or one intend to start based on R&D outcomes.
QUALIFYING PROJECT WITHIN THE TAX DEFITION
Activities that are eligible for R&D Relief are defined in the Guidelines by the HMRC, which must be met for the project to qualify as R&D.
- Advance in science or technology
- Directly contribute
- Scientific or technological uncertainty
What records and specific documentation did ViewLine Productions keep?
Similar to any tax credit or deduction, ViewLine Productions had to save business records that outlined what it did in its R&D activities, including experimental activities and documents to prove that the work took place in a systematic manner. ViewLine Productions saved the following documentation as evidence:
- Project records/ lab notes
- Conceptual sketches
- Design drawings
- Photographs/ videos of various stages of build/ assembly/ testing
- Testing protocols
- Results or records of analysis from testing/ trial runs
- Tax invoices
- Patent number
By having these records on file, ViewLine confirmed that it was “compliance ready” — meaning if it was audited by the HMRC, it could present documentation to show the progression of its R&D work, ultimately proving its R&D eligibility.