Welcome to the Innovation Conversation, a podcast
about innovators, both in business and real life.
Hosted by myself, Ricardo Rescual and Harry McCona.
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startup. from brands to investors to tips and
tricks on how to be successful to start. Hi,
and welcome to another episode of the Innovation
Conversation. Today, we are joined by James and
Gajan from RCK Partners. Welcome, guys. Can you
please tell us a little bit more about yourselves
and what RCK does? OK, well, I can start. So
my name is James Gibson. I'm the chief commercial
officer here at RCK Partners. And my name is
Gajan Girishalingam. I'm an R &D tax consultant
here at RCK Partners. So RCK, we are a financial
consultancy specializing in tax incentives. The
business was founded in early 2020. So we're
just over four years old and we are based in
the city of London on Lime Street. Interesting.
This is for me a very interesting topic because
I obviously talk with a lot of startups, a lot
of investors as well, and I come to realize that
there's actually not that much knowledge around
R &D. So can you tell us a bit more about exactly
what it is? How does it work? Because I have
literally no idea. So R &D tax or the incentive
itself was brought in the year 2000. It was to
incentivize innovation was their primary goal.
How they did this by utilizing R &D related costs
to reduce tax liabilities of companies. If the
company wasn't paying any tax then they could
receive this benefit in another form like a credit.
Basically, what we're looking for is the qualifying
categories in terms of the curve guidelines is
a project which seeks to advance science or technology.
That's quite a vague and broad spectrum. But
that's what providers like us are here to look
at. Yeah. So the scheme is all about incentivizing
innovation in the UK, making the UK more competitive.
various other countries in the world, the majority
of countries in the world have some form of R
&D incentive. Obviously the UK's one is designed
to attract more investment into the UK and stimulate
our sort of tech base. But is it for any company
or it needs to be very interesting specific?
So you mentioned what type of companies can actually
apply for this? So the criteria is really limited
companies who are liable to tax. That's what
we can claim only tax for. In terms of the qualifying
criteria in its broader sense really is a project
or set of projects we seek to advance science
and technology through a resolution of scientific
or technological uncertainty. Now that is a bit
of a mouthful so I will break it down for the
benefit of you guys. It's basically three steps.
What's the baseline scientific or technology
available in the industry currently? How you're
going above and beyond that? What kind of R &D
activities, research, development you're undertaking
as a company? And any uncertainties or challenges
you faced along the way? What kind of technological
things you are uncertain of when going into the
project itself? If we can qualify that and if
we can basically... take that into a explainable
approach to HMRC then that's really it can be
any company large or small and obviously it seems
slightly different but we'll get into that soon
I'm sure but yeah large or small in any industry
as long as they hit those main criteria of seeking
advanced resolution of uncertainty. Does it cost
anything? I mean, how does it actually work?
The process of applying and then I'm assuming
you do actually get some money in the end. So
how long does it take as well? Yeah, so we certainly
try and make the process as straightforward and
painless as possible for our clients. In terms
of how the benefit is received, it's either a
tax reduction or a rebate. So if you're in a
profit making position, and you've paid corporation
tax, the R &D benefit can often reduce that tax.
So it'll either be a sort of cash rebate on the
tax that's been paid, or if you're yet to pay
the tax, it's a reduction. If you're a loss -making
business, then you can receive the benefit as
a straight sort of cash injection to the business.
In terms of timeframe, yeah, certainly we always
aim to have our claims turned around inside of
four weeks. And then HMRC, as per their own guidelines,
They advertise 28 days as the turnaround, the
processing time for their R &D claims, which
is pretty quick. Certainly, though, at busier
times of the year, those timelines get extended
somewhat. But certainly, from start to finish,
for our clients, we aim to have everything resolved
within two or three months. And, you know, the
role that RCKTA takes on all this, is it like
more of an active role where you actually, you
know, handheld people all the way through the
process or is it more of an advisory role? So
in terms of the role itself, once a client's
been on boarded by our commercial department,
they will then obviously have access to them,
but then we have an initial handover call. So
that's when the commercial lead passes on some
of the responsibility to the consultant. We have
a relatively informal to formal first chat about
the company, its nature, but that's mainly to
do with get to know you kind of approach as well
as the due diligence behind it. We explain the
criteria, what we look for, what HMRC look for,
in terms of my specifically what I do is kind
of help and provide support throughout the whole
process to the client themselves. We find that
different clients take a different degree and
different approach to... for this process. Some
may have done R &D before, some people have ongoing
claimers or some people are completely new, some
small startups are completely new to the game.
So it takes a very client focused approach and
that's something that us consultants and us here
at RCK are very dedicated and technically claimed
to do so and hold them through and give support
when necessary. And we always try and link up
the relevant consultant here at RCK with with
the client in terms of their industry background.
You know, we work with lots of software companies
and we've got a team of consultants with computer
science background. So obviously they're speaking
the same language. So obviously someone like
Gajan here would work with our software clients
and we find that this makes for a smoother claim
process. Everyone's understanding the sort of
nature of the projects and it means that we can
get claims produced in a much quicker time than
say if it was... someone with a very different
background that had to be upskilled in a whole
new sector before being able to put forward a
claim there. Yeah, it's actually very interesting
you say that, James, because I have had clients
come to me potentially from other providers who
say one of their main changing points that they
came over to us was because they felt that their
work wasn't being appropriately reflected or
they just didn't have the technical expertise
to reflect to HMRC what the R &D was. So it definitely
helps that we have those, you know, professional
consultants trained in bespoke disciplines of
science and technology to be able to actually
extrapolate the data needed and to pursue this
to HMRC or pursue this to HMRC in a way that
both parties can understand. Okay, I was just,
I'm just curious, you know, most companies, not
most companies, all companies should have an
accountant or someone who does their, you know,
their accounts. Do they already do that? Is it
a part of the service to include or not really?
Or you actually need a specialist like you guys?
Yeah, accountants certainly do offer R &D tax
as a service. Some of them do and I would say
that the numbers offering it are are falling
in response to greater scrutiny from HMRC that
many of them don't have the internal processes
to be able to meet that scrutiny head on. I think
the best way of looking at it is obviously your
accountant is a generalist, they have a wide
variety of specialisms but they're not technical
experts and therefore they sometimes struggle
to be able to certainly support R &D projects
with a technical narrative. that is required
from HMRC's standpoint to be able to enable this
funding and to kind of release the benefit. HMRC
obviously have a team that scrutinizes these
claims. If they've not been put forward in a
manner that meets all of their guidelines, then
there's a much higher chance of a claim going
into an inquiry. So that's typically why a client
would use a specialist. They would use us rather
than their accountant because we're able to unearth
greater R &D activities, so the claim size tends
to be much larger, but also the security of the
claim is greater in that we're ensuring that
someone with technical expertise has put forward
the claim and also that we've got an internal
compliance team that are vetting the claims before
they go in. And thankfully, or usefully from
our perspective, our compliance team is made
up of ex -HMRC inspectors and also accountants.
So they've been on the other side of the fence.
They understand from HMRC's perspective what
the rigors are and what the standards are that
claims need to meet. And we are applying those
own standards to the claims we submit before
they even reach HMRC. So the chance of an inquiry
is much lower than otherwise it would be. Nice.
Well, is this really taxable when you do get
it? Do you then pay taxes on it? Is the benefit
taxable? Yes. For an SME claim under the R &D
scheme, no, that benefit is not taxable. If you
are a large company, so you claim under the RDX
scheme, then the benefit is received as an above
the line credit and therefore is taxable at the
normal corporation tax rate. I see. Okay, interesting.
You know, obviously, different companies will
approach you in different stages. But let's say
I'm a startup, you know, just got started, I
spent a lot of my, you know, capital in, you
know, trying on a new product. How does the process
look like from my side as a startup to then go
and approach RCK? So yeah, again, what stage
actually do they approach RCK as well? That's
it. Once you... if you start approaching us,
then what we'll do is we'll go through our onboarding
process. Again, a commercial executive will be
in touch and try and get you onboarded. Our electric
engagement is complete, which makes both parties...
bound but also you know to protect both any data
transfer etc. After that approach then you'll
be you know on board with your consultant as
well and this is when the technical side of things
becomes more prevalent. I've worked, how we've
worked with, let's say, startup companies is
we go through the process alongside with them
because we feel like the R &D is currently ongoing
because you can, I'm not sure if you're aware,
we've made this clear before, but you can claim
back two years retrospectively. So we can look
back at previous years. Startups tend not to
have this. They may have been just incorporated
or they've already claimed for the retrospective
years, et cetera. So what we can do is we can
take a approach where we introduce your technical
leads mostly through teams and get the majority
of the data so we can write our technical narrative
or we can take a more holistic approach and break
down their R &D as they occur it. I mean the
process is very flexible and it's very client
orientated we all appreciate obviously you're
going to find some different timelines you know
busy times of the month etc. So it is a flexible
process. We try and get claims turned around
quickly but that's for your benefit but at the
end of the day it's a flexible process. And if
a lot of your audience are say at the startup
phase they've maybe not finished their first
kind of year of trading yet, we would still encourage
them to get in touch with us at this stage because
our consultants can offer some advice, some guidance
on how to structure activities, how to record
costs and projects in real time. So it does mean
that when it comes to doing that first claim,
which typically happens once the first year's
accounts have been finalized, that information
that's needed is more readily available. They
don't have to think back to what they were doing
18 months ago. They've actually captured a lot
of those relevant qualifying projects at the
time. So we can just retrieve those. And it does
mean that actually putting the claim together
is a lot smoother and quicker for all parties
involved. It's definitely more encouraged to
do the process as and when it's fresh in your
mind, rather than look back retrospectively.
I mean, I can't even remember what I had for
lunch yesterday. So yeah, it's good to do it
during the process. And obviously, as James said,
we can help and guide as relevant. Interesting.
Actually, I come across this every once in a
while, which is if I'm a company from abroad
and I'm just going to establish myself in the
UK, even though I actually need to spend money
in the UK doing R &D to then apply for the scheme.
How we qualify costs is costs that have been
incurred by the UK counterpart or the UK limited
companies. So any costs incurred in that period
for that UK counterpart. Even if they are subcontracting
expenditure or they have recharged costs to their
foreign counterparts, we can include those costs
as long as these go through the profit and loss
of the UK counterpart. There are more, obviously,
that's quite a simplistic approach. There is
more technicalities involved. I'll go into that
before you hear. But basically, if the UK companies
incur in these intangible costs, we can claim
for that as well with the UK companies. Okay,
so I'm very curious. What's the best success
story you've had so far? What do you can tell
about? I don't know if there's like, you know,
NDA, you can... Yeah, well, obviously, we can't
name clients. Just tell me like a really good
story. Okay, I can take this one. Yeah, all right,
go on. So if you're looking in the software side
of things, I've got a company, I've been working
with them for a couple of years now. The R &D
has really helped them out. They were loss making,
so they received it all in the form of a credit,
so cash. They also had Innovate UK grant, so
part of it actually went through the ARDIC scheme.
Again, this is where providers can come in to
help split between ARDIC and SME because some
companies can fall into both. But anyway, so
they do very cutting -edge stuff, in my opinion,
very novel stuff. I don't want to go too much
into it, but it's in the extended reality kind
of world. I mean, as they're incurring this loss,
this R &D credit has exponentially allowed them
to carry on their business and grow their business.
Most of their funding, they don't make any sales,
so all their funding comes from these grants.
tax release, such as this. There's credit, obviously,
from R &D. So yeah, and they're going for the
future. They've just put their most recent claim
in, which is their biggest claim yet, as of yet,
which indicates their growth. Yeah, it's really
good that UK startups and companies, you know,
innovated. That's what the scheme was here for.
So yeah, it's good to hear them. They contact
me on a daily basis as well, just to just ask
how I am. I'm a busy man. They need to know that.
But no, it's really good. Are there any industry
where you cannot touch them, like gambling? Obviously,
there's always the red ones, right? The ones
you cannot, most people don't want to touch,
which is gambling and other stuff. What about
crypto? Because there's a lot of innovation.
Crypto and blockchain, is that something that
you can apply for? We've certainly got clients
in the crypto space, and actually we do in the
gambling space. Funny you should mention that.
Obviously, if it's grounded in software development,
the actual... what the software is used for is
sort of irrelevant when it comes to R &D tax.
If you're carrying out the R &D activities, then
yes, you're eligible to claim. One of our big
success stories actually is a software company
that did serve the gambling industry or do serve
the gambling industry. they had experienced an
HMRC inquiry into their R &D claim through another
provider had submitted their claim and a sizeable
one, we're talking a number of millions of pounds
that was locked up in this inquiry for over two
years and they instructed us to come in and kind
of save the day and actually after a few rounds
of correspondence with HMRC we were able to defend
the vast majority of that claim and secure the
funds for them, which have then been reinvested
into R &D. We do their claims every year and
we've seen their claims grow thereafter. And
they're doing some really interesting work in
terms of backend software development within
their space. So yeah, we can certainly work in
the gambling industry. Crypto, we've got some...
We've got some interesting clients in crypto
as well. Yeah, a lot of blockchain technologies,
you know, distributed ledger technologies. Crypto
is good. It's more, whatever's cutting edge is
currently innovative, but that doesn't therefore
rule out R &D for companies which aren't. Because
at the end of the day, like I said, the guidelines
are just seeking to achieve an advance. This
can be through replicating what someone else
has done, but you just don't have the knowledge
and, well, not you, but the industry doesn't
have the knowledge and the capabilities to do
that. Let's say, I mean obviously Google and
Amazon are inventing and innovating every day.
That doesn't stop a startup from mimicking what
they do, but this information is guarded by trade
secrets, et cetera. So the mimicry through scientific
or technological means which are different, the
duplication of existing services and products,
these are also examples of an advice. in the
eyes of HMRC, which is often overlooked, we feel,
and that's why the provider can come in, convey
this argument in a way which is eligible for
R &D for the thing. In terms of industry -specific
stuff, some industries may be advancing science
and technology. I mean, obviously there has been
some bad, I wouldn't say bad press, but... erring
away from what's scientific or technological.
As long as you stick to a scientific or technological
approach, rather than, I mean, it'd be difficult
for a restaurant to claim they're making a scientific
or technological advance. They could be doing
R &D in their own sense, but it's not, if it's
not in the realms of science or technology, if
it's not in a field of science or technology,
then, I mean, it's not eligible for an R &D claim.
Interesting. Because I'm just thinking, what
about the team itself? Do you have to fit certain
criteria for your team to be able to qualify
for this? Or anyone can apply as long as they're
actually building something in scientific or
tech? So yeah, HMRC asked for the R &D activity
to be conducted or led by competent professionals.
So competent professionals are people with either
industry experience, professional experience,
or even stuff like university degrees, etc. If
you obviously don't have certain competencies,
it's very difficult to argue that you're undertaking
R &D in a field of science and technology. But
competent professionals is a very key category
and it is something that HMRC are looking for
more and more. That comes with feedback. by getting
back from obviously from other inquiries etc.
But that's generally it. The Compton Fresh noise
is a strong criteria. Interesting. What was the
worst story you have to tell us? Like the ones
you really thought you know this is not going
to happen and then eventually it turned out okay.
Do you mean the cases of one that we didn't think
there would be R &D and then we found it or more?
Exactly. No, the cases where you thought there's
nothing here and then you start doing some research
and you actually transfer them into a success
story. You mentioned the gambling one, which
was quite interesting because they had a lot
of software, something like that. Well, the thing
is we tend to do a lot of due diligence on our
clients before we onboard them. So obviously
we wouldn't start the claim process unless we
were very confident there was going to be eligibility
there. Especially as we're the ones defending
the claims as well, if an inquiry response comes
in. We also want to be confident that on both
sides of the... on the client side and our side
that the claim is as secure as possible. I have
had clients where I've thought they've had R
&D, but then the significance got progressively
more and more and the advance got actually a
lot more technical once we delved into it. That
tends to be a dividing line. And also it's worth
mentioning, which a lot of people are slightly
unaware of, so mathematics is now considered
a field of science and technology. associated
with our new tax relief or eligible for beginning
1st April 2023, accounting periods beginning
on or after 1st April 2023. This was not prior
to this date but now we can also claim for people
doing mathematical sciences. Yeah, equations,
you know, quants do it a lot as well. Equations,
methodologies, processes in the field of mathematics
to optimize processes, efficiencies, financial
data, etc. So a bank could actually buy from
some R &D if they're developing a new formula
to create, I don't know, some financial product,
for example. Yeah, I mean, definitely. It's an
innovative approach. I mean, we've claimed for
banks currently as well, but on their software
side of things. especially fintech banks, do
a lot of heavy development on their fintech side
of things. Yeah, certainly we do a lot of work
within the fintech space. We've got a couple
of hedge funds actually as clients who do employ
a team of quantitative developers. And yeah,
it's the algorithms they're building, which we
can claim on. Some really interesting work going
on there. So I guess AI will be ripe for you
guys, right? Anything to do with AI is just the
perfect claim. That's great. Anything in depth
in technology is more juicy. I like it, but HMRC
like to see any technology. That's what the scheme
is about. AI is obviously a new and developing
technology in the government. are very keen that
businesses in the UK are at the forefront of
this and they're the ones who are pioneering
these new technologies which are going to be
so important in terms of how we live our day
-to -day lives going forward. So they absolutely
want to incentivise. companies in those spaces
in the UK. London has got a great tech hub where
we are the world leaders when it comes to fintech.
We're doing really well in AI and I think any
government should be looking to encourage UK
businesses to grow in these spaces. It will help
the UK economy as we head into the next few decades.
Is there any area that you feel has been overlooked?
Through the R &D scheme? Well, I think if we're
looking at a macro level, the government in response
to some, well, significant amounts of fraud and
error in the R &D scheme did change the rates
you can claim at. And there have been some technical
changes to the R &D scheme. Certainly for SME
businesses, R &D claims going forward are slightly
less lucrative than they used to be. And I would
suggest that I completely understand why they
made that change, but there's perhaps an overcorrection
there, and it does mean that there are really
strong businesses in the UK that R &D is a core
part of what they do that have suffered as a
result of companies claiming that shouldn't have
been claiming. There was a very positive step
from the government at the last budget when they
announced that there would be an R &D intensive
scheme to replace the kind of old SME scheme.
And it does mean now that actually those businesses
in sectors like AI, fintech, machine learning,
biotech will still be able to claim at the higher
rates. So it's good that they kind of they have
corrected what I think was a... a sort of inaccuracy
there. But it'll be very interesting to see what
the next government do with the scheme, whether
there'll be any changes that come in. What are
your unique USPs? Yeah, look, this is a crowded
marketplace, I would say, for R &D advice. Obviously,
you've got lots of accountants that do offer
these services and lots of specialists such as
ourselves. I think what has stood us apart and
has meant that we've grown so quickly, you know,
we've had rapid growth over the last four years,
we're up to about 100 employees now, is we devised
a sort of self -regulatory method, self -regulatory
process backed by a compliance team and we did
this before any of our competitors. Now, what
this essentially means is all of the claims that
we are preparing are then independently vetted
by someone with a sort of compliance background,
someone who has worked at HMRC understands what
their guidelines are intricately and can ensure
that we are adapting our approach so that the
chance of a claim going into inquiry are much
lower. Clients have got a lot more peace of mind
in terms of knowing that whatever we're claiming
for. chances are that that's going to go through
without any extra sort of pushback from HMRC.
And interestingly, this method is one that really
attracted the ex -Chancellor, Lord Hammond, to
our business. Philip Hammond joined as a senior
advisor about a year ago. This was covered, I
think, in the Times newspaper in an interview
with him where he made reference to the fact
that R &D tax whilst he was Chancellor was a
really big pain point for the Treasury. They
knew that there was a fraud and error going on.
A lot of it is down to it not being as a regulated
market. So he really liked our self -regulatory
approach and he hoped that his... his role with
the firm and this sort of subsequent media attention
that that would garner would encourage more companies
to adopt a similar approach and all of this would
clean up the R &D scheme which obviously then
means that you know businesses can can sort of
make use of it and it can effectively do what
it's designed for, which is encourage businesses
to innovate in the UK and to sort of grow and
attract more inward investment into the UK. So
I think that kind of self -regulatory method
is really what has stood us apart from our peers.
If people want to reach out to you, how can you
do so? Well, I believe in the notes for this
podcast, there will be a link to our website.
Probably the easiest way. Follow the link to
our website. You can check us out on there and
there is an online form you can fill in and then
someone from my team will be in contact to discuss
your business and how you can make use of R &D
going forwards. Alternatively, you can certainly
connect with me on LinkedIn. You can connect
with Gadjan. Drop us a message on LinkedIn. That's
absolutely fine. And we're happy to answer any
questions anyone may have. And the website is
rck .partners. That is correct, yeah. Wonderful.
Gentlemen, it's been an absolute pleasure having
you here. Thank you so much for your time. This
podcast is also sponsored by startupnetworks
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