R&D tax relief for FinTech companies
Software touches every industry these days and the rise of the word FinTech is the generic term for technological enablement in the financial services industry. As Forbes highlighted in their article about the history of fintech, this is not a new concept but an evolving subject that is now in the spotlight for all the right reasons.
But with such a long history, what do today’s developments look like? Judging by the HMRC statistics for R&D tax credits 2018, only 485 claims were made by financial services SMEs with an average benefit of just over £72,000. Perhaps this doesn’t tell the whole story. It is likely that FinTech companies identify themselves as tech companies and this sector now has the largest volume of claims at a staggering 9,200. R&D for fintech companies is simply the ongoing development of the solutions. As the world evolves the baseline keeps on moving – to achieve an advance is no easy challenge.
At the heart of R&D for tax purposes, development needs to satisfy two core tests:
An advance in science or technology
Scientific or technological uncertainty
As per the BIS guidelines “R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.”
A typical claim is likely to include:
New efficiency or solutions from software
Reduction of manual intervention
Artificial intelligence in the financial services chain
Data analytics tools
With large sums of money involved, complicated regulatory frameworks and data sensitivity- FinTech need to create solutions against a backdrop that keeps on moving. The key point is establishing the baseline knowledge at the time of starting the project and as the project evolves, so does the baseline.
What qualifies for R&D in FinTech?
At a top level there are five distinct areas which R&D claims apply to in FinTech; staff costs, subcontractors, externally provided works (EPWs), consumables and heat, light and power. This data is used extensively in your R&D claim, find out more about each type below.
The majority of most R&D tax relief claims are based around staff costs. This includes people directly involved with the activity and others who are indirectly involved.
An example of direct costs would be a specific solutions architect – they tend to be defined, technical roles who are the doers of the project. A common misconception is they have to be scientists and academics, this is incorrect. If they are a competent professional whose expertise is part of the R&D effort, then they should be included.
Indirect staff are people who are also involved in supporting the R&D project such as management, procurement, control functions, where they help enable the R&D to happen and also are part of the management of the process. These costs are usually overlooked and can be a big impact on the claim.
Where you may not have the expertise in house, you may rely on a third party to help with part of the R&D process. These claims are qualifying expenses for the R&D tax relief scheme.
Like subcontractors, you may not have directly employed staff but want to have resource for a particular role who act in the same way as employees – i.e. under your care custody and control. These costs form part of the claim.
Any items that are used only for R&D and have no use once the project is completed so consumed by the project is also qualifying expenditure.
When you know how much R&D you are doing, you can then attribute a proportion of your heat, light, power & water to the R&D tax relief claim.
How long will my claim take?
The claim process from engaging with us to submission to HMRC takes 4-6 weeks on average. However this can be done in a matter of days if the information is available for review.
Your management accounts and tax computations will allow us to initially assess and confirm that it’s worth making a claim.
If we see that your business has a good chance of making a claim, then we’ll arrange a technical interview which will last around 2.5 hours. Our specialists will identify any qualifying R&D. We never ask ‘Tell me about your R&D’. Why? The subject for R&D tax is much wider than any academic definitions, so instead we have a detailed conversation to understand your business and the projects you are undertaking. It’s up to us to work out the full extent of your R&D.
The report is then built with two key sections, the technical narrative which is the most important part of the claim. Without it, or with a poor technical narrative, a claim is likely to be questioned by HMRC. The second is the financial report which breaks down the qualifying costs highlighted above.
The reports then go through a Quality Assurance process to check that the claim is robust and maximised.
Finally, this is submitted to HMRC.
How long does it take to get a R&D tax relief claim paid by HMRC?
Payment of any credit or refund on previously paid tax is usually within 28-42 days although at peak periods, this may take longer for HMRC. Both of these create cash back to the business.
If the R&D tax relief is taken as a reduction to your tax bill, this should be submitted no later than 9 months from your year-end date and will reduce your tax bill accordingly.
Can I still claim if we’re not paying Corporation Tax or we are making a loss?
Regardless of if you are profit or loss making, a Limited company operating as a going concern can make a claim.
Which scheme? SME or RDEC?
If you have up to 500 employees and an annual turnover less than €100m or a balance sheet less than €86m, you’ll need to make your claim under the SME R&D scheme.
Can I make a R&D claim if I have lots of employees?
If you have more than 500 employees, you will make an RDEC claim.
Business Intelligence for compliance services
Big data is a core feature of most financial businesses and making sense of that data to drive better decision making is always on the agenda. Our client wanted to create software solutions that removed the common issues of data integrity, input, unification and where the data is pulled from. With an existing infrastructure where the data tables had been built over decades, creating something that made sense of these types of scenarios was the end game . Some parts of the development were completed quickly, but still difficult and others continue to be worked on till this very day.
Bitcoin trading platforms
Crytocurrency is a typical example of a Fintech. The R&D is significant as it focuses on the ever evolving world of blockchain that is still in relative infancy and the need to trade assets. No solutions currently exist to make trading cryptocurrency a comparable machine to the FX industry. So any companies in this area know that most of what they are building will be first to market .
To find out what we can do for you:
Large or small – there’s a scheme for your company
If you are a Limited company, whether you are profit or loss making, as long as you are operating as a going concern you can make a claim.
You are classed as a small or medium sized enterprise (SME): for the purposes of R&D tax incentives if you employ less than 500 employees and have either an annual turnover under €100 million or a balance sheet under €86 million.
You are classed as a large company for the purposes of R&D tax incentives if you employ more than 500 staff or you have a turnover of more than €100 million and more than €86 million in gross assets.
Do you think you could be eligible?
Do you design and make new products?
Do you seek to improve processes, services, materials or devices?
Do you make prototypes or perform testing?
Do you develop software or IT solutions?
Have you invested in failed projects or developed products that are never launched?
Do you employ any staff with a technical or scientific background?
And even if you’ve made a claim already
We maximise claims through an expert led, detailed assessment of your activities. There is usually a very good chance we will improve them.
On average, we have increased existing claims by 200%, because we know how to find the full potential of your claim.
What does it mean for you?
R&D for Tax purposes does not necessarily mean blue-sky research which is a common misconception that can prevent companies from receiving the benefits from HMRC that they are entitled to.
RDEC allows the benefit of R&D to be accounted for within the Profit and Loss (P&L) account, above profit before tax, rather than only through the tax account. So, under the RDEC scheme, large companies who are loss making are now able to benefit from their development efforts for the first time, by way of an immediate net of tax cash credit, which is tax exempt.
The RDEC also enhances the company’s earnings before interest and taxes (EBIT), therefore ends up being more lucrative for larger companies.
The scheme is now a straightforward subsidy against the level of R&D spend that your company incurs.
Why it feels different when you work with GovGrant
Our one and only goal is to get you the maximum benefit you deserve for innovating in the UK. When you meet our specialist, it will feel like you’re talking to a colleague rather than your advisor.
We don’t start with your balance sheet. We start by walking the floors and understanding the things you do and the things you make.
There is no conflict of interest. As this is all we do our advice will never conflict with other tax or audit advice you receive.
You are paying for our expertise (not to support a large corporate infrastructure). Experience tells us that when other firms prepare a claim that they leave some of the value off the table. Even the biggest names.
On average, we see an uplift of 200% over what companies have claimed themselves or using another adviser.
We are not the Big 4 ,and we are proud of it. We are the challenger and the better pair of hands. Innovation is about pushing the boundaries and embracing uncertainty to gain advancement.
Over 300,000 R&D tax claims have been made*
£26.9 billion in R&D tax relief claimed*
The average claim under the SME scheme so far in 2017-18 is £53,713*
The average claim under the RDEC scheme so far in 2017-18 is £600,977*
has successfully processed over 6,800 claims
We have delivered over £200m of claim benefit for our clients
The best way to predict the future is to invent it.