Our story: disrupting the R&D tax relief market

When you start to build a business, it’s inevitable that you'll have a number of goals in mind. For us, it was a mixture of things, but a core driver was to create something that could push boundaries and had the ability to shake-up and simplify the UK R&D tax relief consultancy market for the better. 

After years of working in R&D tax consultancy, the team and I had observed a vast number of companies being turned away for R&D tax relief consultancy because accountancy firms were unable to process their claims. We made it our mission to resolve this problem.  

Navigating the R&D tax scheme

R&D tax relief was introduced for SMEs in 2000 and extended to large companies from 2002. The scheme is designed to encourage greater R&D spending, leading in turn to greater investment in innovation and is one of the main tenets of UK government business support. The more innovation, the more likely we are to remain competitive as a nation, or so the mantra says, and in the current climate UK businesses need all the help they can get.

Our observation was that many SME’s, especially the ones with smaller potential R&D claims, found it hard to get support to access the scheme. Many didn't know that they are eligible, and even if they did, the 500 pages of HMRC guidance on the scheme was difficult to navigate!

Consequently, only around 43,000 claims were made under the R&D tax scheme in 2015-16, a tiny proportion of the UK business population and certainly only a small percentage of SME’s with eligible activities.

The landscape now

According to HMRC’s statistics, UK companies spent £31.3 billion on R&D during the 2017/18 financial year. This resulted in support from the Treasury of £4.3 billion, creating an estimated £1 billion in fees for accountants and specialist R&D tax relief consultants.

So, with so much to gain why don’t more accountants support their clients to make claims?

In the last two years, we’ve had the pleasure of personally meeting over 300 accountancy firms and have uncovered a few key issues with their processes:

  • Lack of knowledge of the scheme. It’s seen as a niche tax area, many firms don’t have the knowledge and are fearful of providing poor advice.
  • Lack of knowledge of their clients business or technology. Many accountants will say that they don’t understand technology so are unable to assess their clients potential eligibility for the scheme from that perspective.
  • The return on investment. The market for R&D tax support has grown substantially over the last 10 years or so and is dominated by specialist providers who offer “no win, no fee” contingent fees. Many of them are hugely successful firms that do great for their larger clients, but for whom it isn’t always economically viable to work with smaller claims. 
  • Time consuming. Preparing claims for R&D tax relief without technology can be a time-consuming and difficult process, resulting in a buoyant market for consultants who help companies with their claims. Claims can take weeks or months to prepare through traditional methods, which is expensive for both the consultant and the client.

So what we have is a sector that, certainly from the perspective of the smaller SME, has a couple of structural problems. At one end, we have an army of high quality accountancy professionals who don't have the knowledge to be able to provide support to their clients in this niche area, and at the other end we have specialist providers whose business model means that they are unable to support smaller claims.

Finding a solution

Given the importance of the scheme and the fact that it is there to provide support to innovation and business growth in the UK economy, it seemed to us that there ought to be a role for technology to play in solving this problem, and thus opening up the scheme to a broader base of businesses.

And so our idea was born – a cloud based platform, easy to use, with all the help and guidance you could need to build your own R&D tax claims. 

The system is white-labelled so any accountant or consultant can use it with their clients without the fear of affecting their brand value. 

It's also capable of producing all the documentation needed to support an R&D claim within an hour, which enables accountants nationwide to service more clients and scale up operations without recruiting more staff.

Reports at the touch of a button

The most innovative aspect of the solution is our technology's ability to create comprehensive, detailed reports suitable for submission to HMRC at the touch of a button. 

To prepare a claim, users of our technology are led through a responsive question set, probing all of the key areas of a claim to ensure that the end result is robust and defensible. Users can also invite their clients to sign-in and answer questions.

Unlike other systems that purport to generate reports, our system is capable of doing so without any free text entry – instead using a variety of sliders, multiple choice questions and numerical inputs to collect information about the client and their claim.

From a technical perspective, converting data into naturally written R&D reports was challenging to achieve and no other company has managed to achieve anything close to this level of automation. The time savings are considerable: a process that can weeks or months has now been reduced to an hour.

It's going well

Since development began in January 2018, our technology has won ‘Best Use of Innovation’ at the UK Business Technology Awards 2018 and the company has won ‘Emerging FinTech Company of the Year’ at the Business Insider Scottish Accountancy & Fintech Awards 2019.

whisperclaims team

In developing WhisperClaims, we have shown that it is possible to digitise a complex form of consultancy that was previously resistant to automation.

Where do we go from here? Scaling, testing, refining & listening to what the market needs. We've got plans to recruit two more members of staff over the next 12 months (read more about our team), to grow our UK customer base and to create new features and services to meet demand. It's going to be an exciting year ahead and a huge thank you needs to be said to our customers and to our massively talented team here at WhisperClaims for helping us to get to where we are.


Image of Mike Dean

Mike is Director of Sales & Marketing at WhisperClaims. He spent the 14 years prior to WhisperClaims as an Interim Director, coach and trainer in SME businesses across multiple sectors. Mike leads on engaging the marketplace and making sure that accountants and consultants are maximising the value of our technology in their businesses. Get in touch to chat to Mike in person.

How technology is starting to impact the R&D tax market – FreeAgent Webinar 27th March 2019

We had the great pleasure of being hosted by our friends over at FreeAgent back in March, where we delivered a webinar on the impacts of technology on the R&D tax market.

Delivered from the in-house studio at their Edinburgh HQ, the webinar attracted an audience of almost 100 accountancy firms from across the UK. The session covered off some of the key stats that we see in the market, the overall growth of the R&D tax scheme and our observations about the direction of technology in this particular area of tax and accounting.

Of course, we also got to talk about our WhisperClaims platform and some of its key features, including the fact that it's white-labelled and therefore allows our users to maintain their brand presence with their clients (as opposed to farming work out to expensive consultants!), and our capped pricing which means your service will always be competitive and profitable!

The session wrapped up with some great questions, covering areas including:

  • Accountant accreditation to complete R&D claims – is it necessary to register with HMRC or anyone else to be able to complete claims? No, this is an unregulated market
  • How does your system ensure quality service delivery? We have a comprehensive and robust approach to the process of building a claim – user feedback suggests this is much more thorough than the existing, consultant led approach
  • What's the likely impact of Brexit on the R&D tax scheme? Blimey, we didn't expect this one! – but it's interesting to note, at least anecdotally, that recent M&A activity in the R&D consulting sector has been led by overseas firms buying in to the UK – PR around this suggests that the UK market is attractive to international investors because, post-Brexit, tax incentives will continue to be a necessary part of stimulating the economy
  • Does the WhisperClaims system integrate with other accounting platforms? Watch this space!
  • Clarification of our pricing model. Does WhisperClaims address very small claims? Yes, we do! We have a  low capped fee on our reports, so no matter how big your claim, our pricing stays low. For very small claims, we charge a % of eligible expenditure so no matter how small the claim, it will always be worth downloading
  • How much training and scheme awareness is needed to create a claim for a client for the first time? We have a comprehensive on-boarding process. More importantly, post on-boarding, users have access to help within the system, tailored to every question, that offers a short help video, some key pointers and direct links to the relevant HMRC guidance. Additionally, we're always at the end of the phone to provide help and guidance. So, there's no need for you to be an “expert” – we're here to help!
  • Does the system provide guidance on whether a project is eligible, or is that left up to the user to decide? Absolutely it does! Fundamentally, our system has been designed based on many years of experience as consultants in this market – Richard, one of our Founders, was a founder Director in one of the UK's largest consultancies – and has been designed precisely to address the needs and expectations of HMRC in justifying eligibility

Our FreeAgent host for the morning, Kevin Lord, did a great job of compering the session and making sure we answered all of the questions – we can't wait to be back for another FreeAgent webinar!

 

 

HMRC’s new portal for submitting R&D claims – here’s what we think

With not much in the way of public fanfare, HMRC recently launched their beta online platform to support the submission of SME R&D claims. As we’re in the R&D software platform business ourselves, you can imagine we had been awaiting this development with bated breath! So, now that it’s broken cover – what does it look like and what’s it for?

Well, our first impressions are that the tool is surprisingly basic and comes with a couple of fairly substantial limitations. The good things first – it allows SMEs to present their R&D claim information directly to HMRC. They can enter the usual costs – employees, connected and unconnected EPWs and subcontractors, software, consumables and costs for clinical trial volunteers. They can also enter a technical description of their projects, covering the baseline state of technology, the advance attempted, and the technical challenges faced on the way.

The big catch is that the portal assumes that the SME knows what they want to claim for – and that’s a big assumption. If you’ve ever been asked to assist with a client’s claim, you know that they usually need help in assessing their SME status, the boundaries of their R&D, and whether their work would even be considered eligible by HMRC. In the new portal, however, there’s not much in-built support to help claimants or agents who are unfamiliar with the scheme to answer these questions. It also doesn’t help companies to calculate whether they’re an SME, or support SMEs who have received grants, or undertaken work as a subcontractor to a Large Company. This means that complex claims with expenditure eligible under the SME and RDEC schemes are essentially not supported at all. That affects a pretty chunky number of companies, particularly within the life sciences and manufacturing sectors.

Maybe these areas will be addressed in the future. In the meantime, we’re confident that WhisperClaims, our award-winning cloud based platform for R&D tax submissions, will continue to prove more useful (and useable) to our accountancy clients, helping them generate significant additional revenues by delivering truly comprehensive R&D support to their clients.

“Tech Start-ups don’t need MD’s”

Great article about our management structure and, well, overall approach to managing our business, published in todays BusinessCloud and written by Tech Journalist and Editor, Mo Aldolou:

https://www.businesscloud.co.uk/news/tech-start-ups-dont-need-mds

2018 UK Business Tech Awards – we won!

When we were first shortlisted for the “Best Use of Innovation” at the UK Business Tech Awards, we were over the moon at being recognised as part of a cohort of eight outstanding shortlisted businesses. The shortlist included a household name with a high profile and an extremely catchy TV advert, and a couple of businesses with significant VC backing.

Imagine how pleased we were on Tuesday night when we were announced as Winners!

A few days later and we're still reeling from the whole experience. Not because we are surprised to have won, because of course we think we're awesome, but simply because it's such a great feeling that peers in the tech sector recognise that what we have achieved with our WhisperClaims app has been a difficult challenge, requiring great levels of technical insight as well as significant domain knowledge in the sector.

Our market reach continues to expand, with users in both the accounting and business consultancy sectors embracing our technology to build new revenues and remove costs from existing processes.  In line with this, our technical team is expanding so that we can continue to embrace innovation, developing new features and refining the user experience whilst thinking about new markets to exploit in the future.

Whilst all of this work continues, we are delighted to just take a moment to enjoy our success.

Here's to another great year in 2019 – let's see what we can win next year!

Click here for a Video of Richard & Jen immediately after winning the award – still in a state of shock!

 

 

 

HMRC R&D stats 2018 – what’s new?

It’s that time of year again. All over the country, R&D tax credit advisors and consultants are locking themselves away in darkened rooms, often with a marketing expert sitting alongside, and poring over the latest R&D tax credit statistics from HMRC. Their aim? Breaking the statistics down into nice, neat bitesize chunks to be pumped out into a series of blogs, tweets and posts. It’s thrilling, and we just can’t resist joining them!

Here at WhisperClaims, we might not have a darkened room or even a marketing expert to hand, but we are massive statistics nerds, and boy, are these massive statistics (badoom-tish!).

So, what have we learned from the Research and Development Tax Credits Statistics of September 2018? We could go on about how, if you look at the statistics one way, manufacturing companies are not making enough claims, or about how the number of claims made by Large Companies appears to be stagnating, but we’d rather focus on the good news – more and more companies making R&D tax credit claims.

In financial year 2015-16, 39,765 SMEs made claims for R&D tax credits, an increase of 25% compared to FY 2014-15. For the financial year 2016-17, 37,360 SMEs have already made claims, and this number will continue to increase over the next year as clients reach the deadline for claiming. When we crunch the numbers, we predict that this will reach over 47,000 claims.

What does this mean for the R&D tax credit market? Well, these numbers prove that the growth in R&D tax credit claims comes entirely from the SME market, many of whom are first time claimants making small claims, for whom the traditional consultancy approach just isn’t suitable as processing costs for claims, and ultimately the market price for such services, are simply too high. As this trend continues, consultants and accountants will be coming under increasing pressure to process more claims, for smaller companies, at rock-bottom prices and margin. How can this be done? Given the costs of running a consultancy team, that’s a pretty difficult challenge – but one that WhisperClaims was specifically created to tackle. See what the software does at www.whisperclaims.co.uk – we’re confident that you’ll see the benefits for yourself during a 30-day subscription-free trial!

And if you want to read the full HMRC report, you can find that here

How do you test more R&D tax relief reports than there are grains of sand on Earth?

I don’t know about you, but it’s not often I get to dust off the theory I learned at university and apply it in real life. Recently, however, I had one of those oddly satisfying days when Computing Science gets dragged out of the cupboard and put to work. It started with a conversation with our developers about testing – specifically, what we should be testing and how to go about it.

By way of context, our software helps companies prepare claims for R&D tax relief, and one of its big strengths is that there is no free text entry – all inputs are multiple choice to make it as easy as possible for the user and their advisor. From those selections, the software automatically generates reports in natural, fluent English for customers to submit to HMRC. It’s beautifully simple to use, but the issue at hand was testing whether each combination of inputs yielded an acceptable report. To answer that, the first question we had to ask was ‘How many unique R&D reports can be generated by our app?’

Mmm, like, a lot..?

And this is where maths comes to the rescue! (I know, I don't get to shout that nearly enough these days…)

Let’s take a question that presents the user with 10 different types of R&D activity and asks them to check off the 5 they’ve done. Mathematically, the number of different ways you can do this is expressed as C(n,r), where n is the number of options and r is how many you can pick. The formula for C(10,5) is:

10! / ( 5! x 5! )  where 10! = 10 x 9 x 8 x 7…and so on.

This is referred to by mathsy people as ’10 choose 5’, or ‘how many ways can I pick 5 things from a set of 10’, and the answer in this case is 252. That would be a pain to test manually, but I guess it could be done within a day or so. However, the problem gets much, much worse when you start to consider multiple questions in combination.

Let’s say our next question contained 45 possible options and you again had to choose 5. This gives you another C(45,5) options, or 1,221,759. Uh oh. Worse, the number of possible outputs by combining these two questions is 307,883,268. Even if we were testing 10,000 combinations a second, it would still take more than 8 hours to test all the permutations!

At this point I knew that the problem was really big, but I couldn’t stop there – out of curiosity, I wanted to know just how big. So, on the back of a (very large) envelope I worked out that for the 50 or questions we use to prepare a claim, our software could generate around 4.25 x 10^35 different R&D reports. The exponent form doesn’t really do it justice – writing it out in full is 425,000,000,000,000,000,000,000,000,000,000,000, a number so magnificently big I don’t even have a proper name for it. It's far bigger than the number of grains of sand on Earth (around 7.5 x 10^18, apparently).

Anyway, why is this relevant? Well, while big numbers are inherently cool (ok, to somepeople, I admit), it's because the solution – the application of clever techniques to drastically reduce the problem space so that it can be robustly tested – is evidence of the thought, care and attention to detail that's going into getting the WhisperClaims software platform right. After all, when we're supplying thousands of software-generated-and-tested R&D reports for accountants and R&D tax specialists across the country, and doing so in a completely automated way, there has to be some pretty slick maths and Computer Science underneath all that nice, colourful UI/UX.

So when you generate your next WhisperClaims R&D report, please take a moment to consider that it is one of 4.25 billionty squillion, and just like you, it’s pretty special 🙂

The costs of producing a R&D tax relief claim – and why you might be too small

As a former founder of an established R&D tax relief consultancy, I'm perhaps more familiar than most with the costs of preparing a claim for R&D tax relief. Actually, since “preparing a claim” can mean a lot of different things to a lot of different people, I should say that these costs were just the ones I had to consider – clearly there are lots of ways to skin a cat. (Please don't skin any cats.)

The first issue, as with many companies, was finding good staff. Finding someone with good academic qualifications, industry experience and strong communication skills could easily set you back £45k, with employment taxes and pension costs taking that closer to £50k. Once you add in the costs of recruitment, providing that person with IT equipment, an office to work in and after allocating a share of the sales and marketing cost, you’re probably at around £75k, easily. Next up to consider is training – while your shiny new employee is getting up to speed, you’re probably not going to see much of a return on your investment. So, let’s throw another £25k into the pot for that, taking us to a nice, even £100k.

Next let’s consider the costs of engaging with clients (that’s clients, people who’ve signed with you, not prospects – let's ignore for now the steadily rising cost of acquiring new R&D clients in an ever more competitive landscape). As a former consultant, I was all too aware that my clients were busy people and that their R&D tax relief claim was rarely a priority…until just before the deadline, when often it became their top priority. Mostly, however, getting and holding the attention of busy stakeholders was difficult, which meant that claims could take weeks – or more often months – to prepare and get approved. Time is money, as they say, and time spent waiting was money wasted.

The third big expense to consider was the opportunity cost of doing business with a particular client and working on a particular claim. If we accepted a company and their claim was small, our fees were smaller than if we’d spent our time working for another company with a larger claim. That means that consultants, at least those working on a contingent basis, tend to screen their clients for potential claim size before offering them a contract. And guess what, that screening takes judgement, a risk assessment and more communication with the prospect – all of which burns yet more money, I mean, time.

All of this means that there’s a natural ceiling on the number of claims that a consultancy company can prepare (they only have so much time), and a lower threshold on the size of claims that they’re prepared to take on (with high costs to cover, they're judging you against what they might get elsewhere). This means that if you don’t have a particularly large company, or are deemed to have a ‘complex’ claim (perhaps involving grants, intricate corporate structure or are backed by a number of different investors), you might find that it’s hard to get help on a contingent basis – you’re just considered to be too much of a risk.

Now, if you’re an accountant who prepares claims, or a specialist R&D tax credit consultant, you might be nodding along ruefully at this point and wishing there was a better way. And yes, I’d agree, all the characteristics of traditional R&D consultancy mean that a large part of the market is currently being under-serviced, with lots of potentially valuable innovation going unrewarded in UK SMEs.

So why don't we do something about that, together? With your clients, your brand and our technology? Why don't we help more companies make more claims, support more UK innovation, help you get more clients and reduce your costs of delivery in the process? After all, wouldn't it be nice to never have to tell someone that they're too small again?

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