In our last article we talked about the emergence of several “semi-automated” R&D Tax Credit advisory firms who have heroically positioned themselves as saviours of the UK start-up community. But can they really deliver HMRC compliance?
Their crusade is to disrupt the R&D Tax Credit market by getting rid of “slow, inefficient, and expensive consultants” with their old-fashioned, time-consuming methods of collecting data and conducting actual face-to-face interviews with R&D claimants.
Instead, these firms maintain that this can all be achieved through “technology” and declare their companies to be “Fintech disrupters” rather than traditional consultancies.
And, despite the fact that you cannot automate the production of a Technical Report, these R&D advisors persist with the message that they have somehow developed a short-cut process to building totally compliant R&D Tax Credits claims?
The answer perhaps lies in the way these firms position themselves as having developed IP in the Fintech space.
A technology focus has enabled them to be VC-backed, and with paper valuations for some founders in excess of £8m, they are understandably keen to encourage the view that R&D claims can be handled more effectively by a technology platform than traditional consultants.
The idea is that the service will become “sticky” for clients and make it bothersome for them to switch providers, which will increase the company valuation in the eyes of investors.
The R&D Tax Credit advisory market is also notorious for people leaving the larger, established providers and setting up their own rival businesses, or jumping ship to competitors.
A sticky “tech platform” should, at least in theory, make it harder for employees to take clients with them when they leave. They want to build a company where the client loyalty is to the platform, not the consultant.
There is some merit in this thinking but trying to circumvent a full and proper technical analysis of the R&D is, we believe, misguided.
We would argue strongly that in the current climate of enhanced HMRC compliance checks, a technical report based upon a few minutes chat with a CTO is never going to capture the level of detail required by HMRC.
The R&D advisory market is changing and many claimants, including tech start-ups, are increasingly aware of the need for strong HMRC compliance.
Such HMRC compliance doesn’t only come from ensuring your SME status or contractor relationships are correct. It is all about having a credible technical report and being absolutely certain that the judgement of the R&D is indisputable.
However much technology you throw at it, in the end, the judgement can only come from expert analysis undertaken by real people. And certainly not rushed off in a matter of minutes.
At the end of the day, the sustainability of this new breed of R&D Tax Credit advisor will depend on their whether their product is fit for purpose and not just style over substance.
Tech market melt-down ?
With predictions of a market melt-down for tech start-ups, akin to the end of the DotCom boom, as VC and public market investors sharpen their pencils as inflation and interest rates rise – it is likely that these so-called Fin Tech start-ups and market disruptors will have their business models scrutinised to a very uncomfortable degree in the coming months.
AND, no doubt many will be found wanting.
Thanks to Rufus Meakin – MSC R&D Sales Associate and specialist in large R&D Tax Credit claims; Industry-leading seller of R&D Tax Credits since 2005.
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