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Funding digital innovation through the tax system — advertising and marketing

This is an overview of how different areas of the digital economy take up funding for innovation through the tax system. Other sectors are covered in separate posts.
We have seen some really exciting R&D activity in the advertising and marketing sector recently. Advertising and marketing are huge drivers in the digital sector and a lot of development and innovation starts there because there are easy value associations to be made. It is easier in that sector than, say, education to be able to demonstrate that innovation leads to quantifiable profit.

The same is true of media and entertainment, which represents another massive area of digital investment but which has traditionally been less active in terms of claiming R&D tax relief. The broad reason for this difference appears to be that media and entertainment are supported by things like the film tax credit, so R&D relief would only provide a small additional benefit.

A lot of service providers and consultants in advertising and marketing are increasingly using technology to provide their services with greater efficiency and scale. This contrasts with newcomers in the market that are developing technology in order to acquire a market share through creating new services. Although SEO, social media analytics and app development were a strong source of R&D tax relief a few years ago we are much more likely now to be making claims for those involved in real-time advertising and individualisation of advertising.

There is a strong element of partnering in this sector and that often gives rise to claims for innovation tax relief as different companies integrate or repurpose their technologies. A really interesting example of innovation we saw recently in this space was taking third party audio visual content and applying an editing algorithm to respond to the type of device the content was being viewed on, tailoring the content to match the viewing pattern trends (shorter on mobile than tablet or desktop). This raises innovation challenges both in the technology and in the way the technology interacts with third party content.

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