My Journey: A month ago, I thought R&D Tax was all about tax, but I was wrong.
It was mid-August; I was on the French west coast browsing LinkedIn, looking for my next challenge as a recruiter. I came across a Leonid Group post and, after doing some research, I took the initiative and got in touch. A couple of days later, I got to meet James face to face in the rather snazzy Barcelona office in Marina Port Vell. A week later, I was back, performing an extensive presentation on the wonderful world of R&D Tax. The following week, I was walking into my first day as a Leonid Group Europe employee. I was now looking to build upon my knowledge of the R&D tax space.
It’s been a steep, but very enjoyable learning curve for me. As a lesser-known industry, I thought I’d produce a blog to share with you what it’s all about. Hopefully, it won’t just educate, but also raise some awareness of the industry as a whole.
So, what is this R&D Tax stuff about?
It’s about rewarding innovation to stimulate growth.
Essentially, the UK government (like multiple other national governments across the EU, US, LATAM, and APAC) have put in place a tax incentive to create a positive cycle of investment in innovation, rewarding companies’ investment in R&D and diversification.
In practice how does it work?
- Any company spending money on innovation, developing new products, processes/services, or enhancing existing ones are eligible for a cash payment and or/corporation tax reduction. The scope is huge! It could be anything from developing vegan honey, a new algorithm for a music app, or the creation of a recycled plastic construction material.
- The company (usually) contracts an R&D Tax consultancy team to make a claim to HMRC.
- The team then identifies the qualifying expenditures and makes the claim on their client’s behalf.
- Once confirmed, the company receives their payback. This is often extensive. Bigger corporations (named RDECs, in this industry) can receive around 10p for every £1 of qualifying expenditures. SMEs can receive up to 33p of every £1!
And why is it a good time to be in the R&D tax space?
Besides being one of the most interesting areas of consulting, interfacing with clients of all shapes and sizes at the forefront of innovation, this is a growing job market with a severe lack of talent. The vast majority of companies in the UK who are able to claim are not doing so due to lack of awareness; this means that there exists a huge client pool for the players in the industry. Moreover, in the past years, we have seen an increase of claims to HMRC ranging between 20 to 25% a year.
The market is full of opportunities to chase innovation, qualify it, and eventually reward innovative companies. Doing so provides additional funds to boost their next project.
What kind of jobs are we talking about, and why was I wrong?
It is indeed a tax job, but only in the latter part, and the result. What on Earth do I mean by this? Fair question.
Broadly speaking, it’s not the accountants but the technical consultants (engineers, software specialists, etc.) that are best placed to understand the intricate operations of your innovation. They are also the ones best suited to find additional operations you may not realise are eligible. It’s these technical people who are also the ones best placed to write the technical narrative in the report submitted to HMRC, to support the claim.
Don’t get me wrong – all consultancies need strong financial people in the team for support when it comes to the more complex financials (particularly RDEC), but in an industry called R&D Tax, I’ve found it surprising how ‘un-taxy’ it is.
If you’re reading this with an engineering, science, software, pharmaceutical, etc. background and this has piqued your interest, it would be my pleasure to share more about this industry with you. Not only is it satisfying to be supporting company innovation, and making a difference, but it’s also very interesting to boot.
Consultant | Innovation Incentives; R&D Tax and Grant Funding
London // Barcelona
+44 (0)20 3958 7484