Naturally, innovation is a word that can be used overly freely by businesses to signify virtually any kind of thinking that is slightly different from the usual. In this case, however, we are thinking of something that will benefit companies looking to grow. Innovation in the terms we are discussing here refers to the creation of products, services, processes and ideas that can help not only your business to succeed but represent a new type of thinking in your industry. 

Having defining this, you could argue that we are ultimately still talking about ideas that will make the business money through sales. But the truth is that many innovations require a great deal of time and financial input - and not all of your innovations, sadly, will be successful. This can discourage companies from pursuing innovation, as despite the potential upside, there can be no guarantee of success. 

Businesses can innovate with R&D tax credits

Thankfully it is well established that innovation is a fantastic thing - not just for businesses themselves but for the industry, the economy, and for society in general. As such, the government has a scheme that it is designed to reward companies for innovating them - reducing their tax bill if they are in profit, or reducing their losses if they are not. 

There are two main types of tax relief offered by the government: research and development (R&D) tax credits and Patent Box tax credits. These can be fantastic ways to make the best financial use of your innovations and ensure that your company is rewarded for the work it is doing. 

But there is a problem: many organisations are not claiming the kind of R&D tax relief that they could.

There are two main types of tax relief offered by the government: research and development (R&D) tax credits and Patent Box tax credits.

Why aren’t organisations claiming as much as they can?

There are actually many reasons that companies might not be claiming what they are owed through R&D tax credits. Firstly, it is a complex procedure to claim back R&D tax and some companies may have attempted it in the past and actually found the whole job too confusing. Even standard accountants struggle when dealing with R&D tax relief and will outsource some of the work to those with more specific expertise.

It’s no surprise then that less experienced businesses are finding it challenging to claim tax relief. But there is another issue too. 

“Unfortunately, it is the case that many businesses assume that they can’t possibly be eligible for R&D tax relief," says Simon Bulteel of R&D tax relief specialists Cooden Tax Consulting. “They might assume that R&D purely refers to the field of science – however, this is a misconception. Actually, R&D refers to innovation across a wide variety of sectors”. 

Lack of understanding of what R&D tax relief is meant for can play a huge role in the fact that businesses aren’t taking advantage of the tax credits they are owed. Companies across industries as varied as entertainment, marketing, transport, construction and many more apply and get R&D tax relief every year.

Final thoughts

Innovation is a vital tool for growth for businesses across many different industries, especially under the present circumstances where making further sales and growing your business through profit may not be feasible. If businesses are missing out on valuable R&D tax credit relief it is because they are not working with specialists who can help them.

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It is advisable for any organisation that carries out any kind of innovation as a part of their business to speak with experienced professionals in R&D tax relief, who will be able to guide and advise them on whether it is possible for them to claim. 

Failing to do so is missing out on money and isolating your businesses from a very legitimate form of growth.

On Friday, the UK government announced the release of £400 million in government and industry funding for seven major research and innovation projects across the country.

Each of the funded programmes aims to drive long-term growth in the UK economy, with a focus on job creation, education and skills training, and the founding of future-proof industries that will assist in the country’s economic growth in the aftermath of the COVID-19 pandemic.

“Today’s announcement will ensure some of our country’s most promising R&D projects get the investment they need to take off and thrive,” said Business Secretary Alok Sharma in a statement.

Included among the listed recipients of the new funds are Cardiff University, which is researching emergent technologies such as 5G telecommunications and medical devices, and Artemis Technologies Ltd, which aims to introduce wind-electric hybrids for maritime vessels and a zero-emissions water taxi scheme.

Most notably for the financial sector, £55 million has been granted to a consortium led by the University of Edinburgh, which is undertaking research into better understanding financial behaviours. £22.5 million has been earmarked to support the development of the Global Open Finance Centre of Excellence in Edinburgh and Central Scotland, the aim of which is to draw on expert knowledge from across Scotland to encourage and train emerging talent, create ethical standards and form new partnerships in the sector.

The news has been well received in financial circuits. Colin Hewitt, founder and CEO of Edinburgh fintech Float, commented that the funding “will do great things” for Edinburgh’s fintech scene.

“We have a well-established financial sector and a thriving start-up culture, with plenty of cross-over between the two,” he said. “The UK government has been extremely supportive of this community, and [its] continued financial support makes a real difference.”

This AI ‘arms race’ is being driven by two tech superpowers: the United States and China. The US is barrelling ahead, with Washington recently signalling its intentions to promote AI as a national priority. Last year, President Donald Trump launched a national AI strategy – the American AI Initiative – which orders funds, programmes and data to be directed towards the research and commercialisation of the technology. 

Government involvement and long-term investment in AI has paid off: US companies have raised more than half (56%) of global AI investment since 2015. China, meanwhile, is catching up quickly and is now vying with the US to become the dominant force in the area. In 2017, it laid out a roadmap to become the world leader in AI by the end of the decade – and create an industry worth 1 trillion yuan (or the equivalent of $147.7 billion). As part of the three-step strategy, China has announced billions in funding for innovative startups and has launched programmes to entice researchers.

Achieving economic and political prowess is the ultimate goal. Indeed, AI is a vast toolbox of capabilities which will give nations a competitive edge in almost every field. However, the question beckons: where does Europe stand in this race, and what is at stake? Nikolas Kairinos, founder and CEO of Soffos, offers his analysis to Finance Monthly.

Europe is falling behind  

Thanks to great access to home-grown talent and an inspiring entrepreneurial spirit, Europe is still a strong contender in this race. According to McKinsey, Europe is home to approximately 25% of the world’s AI startups, largely in line with its size in the world economy. However, its early-stage investment in the technology is well behind that of its competitors, and over-regulation risks stifling further progress.

Thanks to great access to home-grown talent and an inspiring entrepreneurial spirit, Europe is still a strong contender in this race.

Early last year, for instance, the European Commission announced a pilot of ethical AI guidelines which offer a loose framework for the development and use of AI. The guidelines list seven key requirements that AI systems must meet in order to be trustworthy; amongst the chief considerations are transparency and accountability.

The intentions behind such proposals are pure, albeit counter-productive. Proposing a new set of standards to be followed risks burdening researchers with excessive red tape. After all, AI remains a vast ocean of uncharted waters, and introducing ever-changing hurdles will only impede progress in R&D. Innovative new solutions that have the capacity to change society for the better might never come to light if developers do not have the freedom to explore new technologies.

Meanwhile, a European Commission white paper recommends a risk-based approach to ensure regulatory intervention is proportionate. However, this would only serve to deter or delay investment if AI products and services fall under the loose definition of being too ‘high-risk’.

Upholding human rights through proper regulation is of paramount importance. However, Europe must be careful to find the right balance between protecting the rights of its citizens and the needs of technologists working to advance the field of AI.

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The risk of ignoring AI solutions  

What is at stake if AI development falls behind? The risk of ignoring AI solutions is immense, particularly for sectors like the financial services industry which must keep pace with evolving consumer habits.

AI has given the world of banking and finance a brand new way of meeting the demands of customers who want better, safer, and more convenient ways to manage their money. And with populations confined to their homes for long periods of time in the face of the coronavirus pandemic, the demand for smart digital solutions that allow people to access, spend, save and invest their money has peaked.

Those who fail to adapt by leveraging AI are at risk of losing their competitive advantage. The real value of AI is its automation potential; AI solutions can power more efficient and informed decision-making, taking on the data processing responsibilities that would normally be left to humans. If used wisely, smarter underwriting decisions can be made by delegating the task of assessing loan and credit applications to AI. Not only is this markedly faster than performing manual checks, but the chances of making risky decisions will also be reduced: AI software can be used to build accurate predictive models to forecast which customers have a higher likelihood of default.

Accurate forecasting is needed to ensure the continuity and success of a business. Again, those businesses that utilise the AI toolsets at their disposal stand to benefit from advanced analytics. Machine learning – a subset of AI – is adept at gathering valuable data, determining trends, anticipating changing customer needs and identifying future risks. Those who turn their back on AI risk losing out on sound risk management, leaving their profits and reputation vulnerable.

Accurate forecasting is needed to ensure the continuity and success of a business.

At the heart of any bank or financial firm, however, lies the customer. Traditional bricks and mortar banking is no longer the favoured option when money can instead be managed online. Yet, while online banking is by no means a new phenomenon, AI offers the hyper-personalised services that customers seek. Indeed, a global study conducted by Accenture recently found that customers today “expect their data to be leveraged into personalised advice and benefits, and tailored to their life stage, financial goals and personal needs.” Meanwhile, 41% of people said they are very willing to use entirely computer-generated advice for banking.

There is clearly an appetite for innovation from the consumer side, and financial institutions must step up to enhance their offering. Enhanced, real-time customer insights generated by AI will optimise recommendations and tailor services to each individual. AI-powered virtual assistants that offer personalised advice and tools which can analyse customers’ spending to help them meet their financial goals are just some of the ways that financial institutions can create a better customer experience.

These are just a few of the many incredible applications of AI within the financial services sector. Not only can it enhance a business’ core proposition, but the cost-saving potential and operational efficiency is becoming difficult to ignore.

AI technologies are transformative, and those who fail to invest in new solutions risk losing out on the multitude of benefits on offer. I encourage business leaders to think carefully about the about the outcomes that they want to drive for their institution, and how AI can help them achieve their goals. I hold out hope that Europe as a whole will ramp up AI development in the coming years, and I hope to see governments, businesses and organisations working together to continue to push forward the AI frontier and pursue innovative applications of this technology.

Nikolas Kairinos is the chief executive officer and founder of Soffos, the world’s first AI-powered KnowledgeBot. He also founded Fountech.ai, a company which is driving innovation in the AI sector and helping consumers, businesses and governments understand how this technology is making the world a better place.

Simon Brown, founder and managing director of R&D tax credit specialist ForrestBrown, explains how vital funding for businesses is being overlooked – yet it could be available in just four weeks and need never be paid back.

It barely needs saying that the economy is in crisis. At the start of April, as many as one in five businesses were facing collapse within a month, while 44 per cent say they have just one to three months’ worth of money. The need to find new reserves or additional income has never been more urgent for businesses of all sizes and in all sectors.

The Government is stepping in, with £330bn backing loans from banks. But these have been slow to materialise and there have been a number of challenges along the way. Things have improved after a crackdown from the chancellor, but the loans will still need repaying at some point. Those businesses taking on debt now may be stifled by it when the recovery comes.

However, there is another way. Research and development (R&D) tax credits are a Government incentive designed to reward UK companies for investing in innovation – something we’re seeing a lot of in the battle against coronavirus.

They’re nothing new, having been launched back in 2000. On average, SMEs get about £53,714 per claim based on 2017/18 figures. However, even smaller companies can receive much bigger claims – millions of pounds in some cases. This amount of money could help enterprises remain solvent so they can live to grow.

It may sound mercenary to be looking for “free cash” at a time of crisis, but that would be a misunderstanding of how the credits work. R&D tax credits are a reward for businesses that have already invested in staff, materials and other project overheads. In fact, HMRC itself has found that for every £1 of tax foregone, up to £2.35 of additional R&D is stimulated. Perhaps every £1 invested in saving innovative businesses across the country could save £billions in lost tax revenue, unemployment payments and sluggish growth after the crisis.

Research and development (R&D) tax credits are a Government incentive designed to reward UK companies for investing in innovation – something we’re seeing a lot of in the battle against coronavirus.

One shrewd business using R&D tax credits to help plug the funding gaps and get through this challenging time is our new main contracting client MY Construction.

On 27 March, just five days before their tax year-end, we had a first call where our R&D process was outlined and engagement letter was sent. They were soon approving the submission we had prepared for the year ended 31 March 2018. The amount? Hundreds of thousands coming back into the business when they needed it most.

That’s the transformative potential of this incentive done properly. However, demand is high and the pressure facing the HMRC to process applications is extraordinary. With this in mind, it’s worth getting the claim right first time. With businesses hanging in the balance, there’s no margin for error.

Getting It Right

A claim starts with the gathering of all the appropriate information – usually data such as payroll and accounts. Next comes the identification of qualifying activities and costs,  a foot wrong at this stage can cause problems down the line. To be sure, firms really need a specialist so they neither over – nor under claim.

From these identified qualifying activities, a benefit figure can be calculated. But to be accurate, it needs to decisively navigate a host of business-specific complicating factors – like grants and subcontracting arrangements.

Overall it must have a robust methodology behind it. This should include a technical narrative, a summary of costs incurred and how the claim has been calculated. The next step is submitting the report in the way HMRC wants to see it. It’s vital to update the Corporation Tax return amended to include the R&D tax credit calculation.

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More Haste, Less Speed

Even if a business is in hibernation mode right now, it is possible to undertake a claim by collaborating with a specialist to do the legwork for them. But the biggest mistake would be to rush it. There’s been talk of businesses attempting to undertake the claim in 24 hours. This is a recipe for disaster and a sure way of inviting an enquiry into a poor claim that could cost a business dearly when they can least afford it.

However, it can be achieved quickly – if not overnight – with the right approach. Even in lockdown. Many businesses have resorted to home and remote working, and this should be harnessed to ensure the appropriate people are included in the claim process.

In summary, it’s important not to underestimate the value of R&D tax credits done properly. In challenging times, businesses need every bit of help they can get. That means not leaving a penny of the value you’ve earned unclaimed.

A recent report in The Telegraph says businesses across the UK are losing out on billions by not claiming for R&D Tax credits.

If you are carrying out any research and development (R&D) in your business, you should be making the most of the government scheme to claim tax relief on eligible R&D spend.

In this article I’ll be highlighting the things you need to know before putting together a claim. First let’s take a look at exactly what R&D Tax credits are and what type of business can make use of the scheme.

R&D Tax Credits in a nutshell

‘R&D Tax Credits’ is the umbrella term for tax relief available to businesses that invest in developing products, services, software or processes. The key is that the R&D activities seek to achieve an advance in technology. This can be creating new products, services or processes or modifying existing ones.

Who can claim R&D Tax Relief?

Any business that meets the eligibility criteria can claim, regardless of sector. It is a common misconception that only businesses in the technology and engineering sectors can claim. This isn’t true. Eligibility criteria simply asks that:

• Your business is a Limited Company and is subject to Corporation Tax
• Your business has carried out qualifying research and development activities
• Your business has actually spent money on these projects

For the main scheme, your business also needs to be a small or medium-sized enterprise (have fewer than 500 employees), and either, a turnover of less than €100 million, or gross assets of less than €86 million. If your company has more than 500 employees, or is in partnership with another company, other rules apply under the Large Company Scheme.

The information you’ll need when making an R&D tax claim

Putting the right information together when you submit your claim to HMRC for R&D Tax Relief could make all the difference and ensure you maximise your tax break.

1. Technical information

Part of the process of making a claim involves writing what is called a ‘technical narrative’. This part is really important and often the bit that companies fall down on. The technical narrative explains your project, including the features and challenges involved.

HMRC will want to see that you have looked for an advance in science or technology and sought to achieve this aim. You will need to show that your challenge could not easily be worked out by a professional in the field and that you had to overcome scientific or technological uncertainty.

The narrative needs to be written from a technical perspective, not a project management one. It needs to be technically complex and show how resource intensive your activities were. Ideally your R&D technical narrative should be 2-5 pages long.

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2. Details of your R&D spend

This is essentially all of the financial information related to your R&D project. You will need to know what costs can be included in your R&D Tax claim as not all costs are eligible. Costs that can be claimed are known as ‘qualifying expenditures.’ You should be able to claim for:

• Direct staff costs
• Subcontractor costs
• Externally provided worker costs
• Software costs
• Utility costs
• Payments to clinical trial participants
• Contributions to independent research
• Prototypes

There are a lot of costs you can’t claim for, even though they may have been incurred as a direct result of your R&D project.

Items you can’t claim for include travel and subsistence, recruitment agency fees, postage, stationery and freight, computer costs, capital expenditure, rent and business rates, telephone and broadband charges, server costs, professional fees and Patent attorney fees. Ideally, consult with your accountant or an R&D tax specialist to clarify the costs you can claim for.

You will need to match finances to the data in the technical narrative. If you don’t do this HMRC will almost certainly query your claim.

3. Information about employees that have worked on the projects

Qualifying staff costs fall into two categories (direct and indirect). Let’s take a brief look at what this means. Direct staff expenditure refers to the costs of directly employed staff who are engaged in carrying out R&D activities.

This includes gross wages, Employer’s National Insurance Contributions and pension costs. The staff have to be company employees under a contract of employment. Directors wages can also be included if they are working on the R&D project.

As employees are unlikely to be spending all of their time on R&D, you will need to maintain timesheets or similar records to present with your claim to HMRC.

Indirect staff costs are those where employees are engaged in wholly or partly supporting those engaged directly in R&D activities. This includes clerical support and administration staff, maintenance engineers, security staff and training staff.

How long will it take for HMRC to approve?

Typically, once you’ve submitted an R&D Tax claim to HMRC, it takes around 6-8 weeks to get approved, or longer if the tax office has queries. Once approved you’ll receive either a tax rebate or a Corporation Tax deduction.

Don’t delay, start your claim today. Speak to an R&D tax specialist to find out if your project is eligible.

Almost 9 in 10 finance companies could be eligible for Research and Development (R&D) tax relief on new products and services but only 41% of them have ever claimed, Catax has revealed.

Businesses in the finance sector are missing out on millions of pounds even though 89% of them have developed new products or business process in the last two years, spending an average of £351,594 on these innovations, research shows.

This means these companies are in line for valuable R&D tax relief that the government provides to encourage innovation.

But despite three quarters (77%) of finance firms being aware of R&D tax relief, less than half report ever claiming it, the Catax study shows. This is either because they don’t think they qualify or they incorrectly believe that it is expensive and time consuming and ‘would not know where to start’.

A quarter of finance businesses do not realise they can claim R&D tax relief if they develop a new product or service while more than a third of the business managers said they ‘did not know’ if their firm had ever made a claim, according to the Censuswide survey.

The national average for the number of firms that have ever claimed is 36.8%, which puts finance companies ahead of many other sectors despite the fact they are missing out on a huge number of claims.

Executives believed the average value of an R&D tax relief claim in the first year to be just £27,254 when the true figure is almost double that, at £49,000 for firms in all sectors nationwide. R&D doesn’t even have to have been successful to qualify and claims can be backdated at least two years.

Catax CEO, Mark Tighe, commented: “The finance sector is missing out on tens of millions of pounds in R&D tax relief each year – despite claiming to be experts in finance. Many companies still think that R&D is all about science laboratories and test tubes and simply do not relate it to their own innovations.

“We need to get away from this way of thinking. The vast majority of finance companies invest hundreds of thousands each year on developing new products and services which would make them eligible and yet less than half are actually claiming.

“Finance executives looking to improve margins and efficiencies must take a proper look at their R&D tax relief entitlements. Most good R&D tax relief specialists will work on a commission basis so concerns over costs should be dismissed.

“New products and services do not even have to have been successful to quality for R&D tax relief because it is all about encouraging innovation.”

R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum reimbursement from the HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.

(Source: Catax)

Many dedicated cryptocurrency and blockchain companies will be ‘R&D by default’, says specialist tax relief firm, Catax. They could therefore be eligible for much more relief than a standard business, meaning US and UK firms could be in line for hundreds of millions in tax relief. Traditional firms investigating blockchain technology and the commercial potential of cryptocurrencies will also be eligible for R&D tax relief.

Catax estimates that as much as 82% of the work carried out by dedicated crypto firms will be eligible for R&D tax relief given its ‘ingrained innovation’. This compares to roughly 35% with a traditional company performing R&D.

In many cases, the enhanced R&D eligibility is because the majority of the workforce will be focused on developing this technology and adapting it to a specific sector or use case.

Rather than channel-specific, the R&D being performed at these companies is company-wide.

But traditional firms investigating the use of these new technologies for their specific sectors will also be eligible.

Firms in countless sectors are currently weighing up the benefits of trading in cryptocurrency amid the recent $12,000 valuation of Bitcoin, and the acknowledged efficiencies of the blockchain. This amounts to time and money ‘developing a new product or business process’ — the basic requirement for an R&D tax claim.

UK firms have already raised a total of £52.8m ($71m)¹ in ICOs, while the total raised in the US has reached more than $1.1bn (£820m). In the United States, firms are allowed to claim relief under the R&S Tax Credit system.

TokenData has revealed 90% of funds raised through ICOs has occurred in 2017, which means R&D tax relief for UK firms will fall well within the two year deadline for claiming.

Mark Tighe, CEO, Catax, commented: “Each day we’re seeing more and more dedicated blockchain and crypto companies emerge, while a growing number of traditional firms are also allocating significant resource into how they could integrate this technology into their own operations and sector.

“Within the crypto field, innovation is often company-wide rather than channel-specific and so the eligible expenditure is considerably higher than with traditional firms carrying out Research and Development.

“While you can’t claim R&D on Bitcoin and the blockchain itself, the potential for relief comes when companies evolve them or create new versions altogether. An example might be creating bespoke ‘sidechains’ for your sector that run alongside the blockchain, or a new digital currency altogether.”

(Source: Catax)

In the digital economy, trust is the new currency. Technology is changing the nature of trust – especially for banking and financial services as they strive to provide greater value and protection to customers, and deliver products to market quickly through machine learning, blockchain and pervasive encryption. Explore the rise of "digital trust” and its impact on business in an interview with global trust expert Rachel Botsman and IBM Industry Platform General Manager, Strategy & Market Development Shanker Ramamurthy. Rachel’s “digital trust” theory was named by TIME as one of the “10 Ideas That Will Change the World.”