James: Welcome to this interview by the Digital Accountancy Show. I’m delighted to be joined by my friend and colleague, Luke Hamm. Luke and I have known each other for over 12 years now when I first started working in the world of accountancy. So Luke, you have a lot of experience of working with accountants across the UK, both large and small. It would be great to hear from you about your experiences of working with accountants and in the world of R&D tax as well?
Luke: Prior to working at GovGrant I worked with accountants in Insurance. I’ve been in R&D tax and at GovGrant for four years now, and even in that four-year timeframe, the market has changed. How accountants talk about R&D tax, how clients talk about it, and how other consultants talk about it has changed dramatically. It feels like we’re now at a point where the conversation around R&D tax needs to change. We’ve found ourselves in a position that doesn’t align, in my view, to the integrity of the scheme. And it’s vital, in my mind, that accountants need to be dialled into that conversation more so than ever before. We need to get rid of the cowboys on the pitch, get rid of the bad sales practices that are happening, and really focus on that most trusted relationship between a client and an Accountant.
James: Tell us a bit about GovGrant and what you do
Luke: So, we are an R&D specialist. Over the past couple of years, that conversation very much evolved into thinking about our clients’ innovation particularly around their intellectual property strategy. What’s helpful with being R&D tax-related is, it also dials the conversation into a Patent Box, and how you can have an outcome-focused IP strategy. We have found that hugely, hugely powerful when speaking to our clients and accountants around, “Well, why is this different? I could choose ten different R&D providers. Why are you different?” And that focus on – R&D is all about creating potentially new assets.
So what do I do with that asset once it’s created? If it fails, it fails. But if it’s created well, and it’s successful, what have I done with that asset? And that economic shift from physical assets, the balance sheet full of bricks and mortar, into these intangible assets that are difficult to value, difficult to commercialise, difficult to think about. So what we try and do at GovGrant is to keep clients outcome-focused. R&D, we can keep outcome-focused. IP strategy with Patent Box in mind, we can keep IP focused, and also be that connector between different professions.
We like to help empower accountants to have the innovation conversation, and some accountants can do R&D superbly well. Others will think, “I’m really good at doing claims for engineering companies, but not good at software, or this client needs just more people working on it.” When I think about how we deploy our services, we can service a client through one pair of hands, quickly, focused, if it’s a relatively simple client. But I would say the vast majority of our clients, and engagements we look at, you are reliant on more people in that value chain for the client to really maximise – not just maximising value, but to maximise the impact of the conversation, and to ensure that it’s compliant and robust. What I mean by that is we have a process where there will be an Account Manager. That person owns that client’s experience. If they’re speaking to the Accountant, speaking to the technical specialist, the compliant professional and speaking to our technical resources to get that job done. They might be thinking… “Do I need to – challenges from a technical accounting perspective, do I need to challenge this from a technical perspective? Do I need to think about asking the client questions, very much with a commercial lens, to try and get to the right outcome?” We can provide all this support and that’s how we like to do it, and that’s the value that we potentially can help give Accountants. We either do it all the way through or f there are gaps that we can fill, we can hopefully be a solution as part of that thinking.
James: How many people do you have in your team, and are you based all over the UK?
Luke: Yeah, we’ve got 65/70 people all based across the UK. Everyone’s remote at the moment, but our head office is in St Albans. We have a national reach and size. Our clients are start-ups going outright the way through to FTSE 100 businesses.
James: What do you think accountants need to be wary of when they’re submitting R&D claims on behalf of their clients?
Luke: I think the key thing, and the number one thing is it’s not, as everyone knows, it’s not just a tax thing. Whilst there’s no legal requirement to submit a technical justification, it’s very much expected. It’s very much expected, and it should be expected because the number is an outcome based on the challenging of the legislation about do you comply to it? And very often, the most obvious type of inquiry that you’ll see from HMRC is, “You didn’t submit any form of technical justification, or the technical justification was weak.” Very rarely does an R&D inquiry start from the point of the numbers. It will start with the technical aspect of the claim. There are some red flags around the numbers, rules of subsidisation, the RDEC Scheme, SME Scheme, the impact of grants. There’s a few, if you like, mechanical red flags that should be checked up. However the number one thing is, does that technical justification stand up to the value that’s being claimed.
James: At Digital Accountancy Magazine, we’re all about using technology to help accountants. What are the key challenges, for accountants with R&D tax, and is there a technology that can help Accountants with that?
Luke: It’s a great question, and I think there are two things I’ll cover there. There are technology solutions out there in the market. Quite frankly, they need a really good look at. They need a good testing to understand are they doing the thing that they should be doing? My personal view is I’m very, very sceptical of the current solutions in the market that says, “Come and DIY your claim”. Instead of spending ten hours pulling together a technical assessment, you can get a million-pound claim done in half an hour!” Let’s just unpick that statement, because it’s a statement made publicly by some of these providers. You can get a million-pounds investment from the UK Government for 30 minutes of your time! Does that statement make sense? And if anybody thinks it does, if anybody thinks anybody is going to make a million-pound investment, due to a 30-minute conversation, you are absolutely barking mad!! I believe it’s irresponsible, it’s quite frankly a disaster that people are getting away with those sort of comments.
The second part of the question is, what are we doing? This is a risk that we want to stop. We want to empower Accountants, and we want to provide the solutions. Our current solution at the moment is we have an online portal. I think one of the things around Accountants working with R&D providers is what transparency does exist? Do I know where my client is in your process? What’s going on? So we’ve invested in a portal that gives Accountants a clear window into exactly what we’re doing, exactly what we’re doing with their clients, how they can submit claims. Where are they in the claim?
There are two evolutions of that which are currently in development that we’ll look to go live within May, and one of those solutions is to create a platform that Accountants can use to do small-value claims for their clients. And there’s a reason why we want Accountants to have the tools available to do the smaller level of claims, one, because technology can solve that issue. The growth of the R&D tax scheme is for claims less than £10,000 in value. They are, in theory, the businesses who need those cash injections the most. Now, because there are potential barriers around fees associated with it, we want to create a very, very low-cost solution, potentially free, to Accountants to be able to get a small client to a level of benefit in a very simplistic, user-friendly way. We will not be putting this solution out into the wider market.
We want to put this behind Accountants because Accountants know clients. They know their numbers. They know who the people are. They can have the confidence of not abusing the scheme, and that’s HMRC’s biggest concern at the moment is abuse of the scheme. So we are developing a solution that Accountants can use that gets clients through the process in an appropriate, value-aligned way. And then the last thing we’ll be adding to our portal, our digital environment for Accountants is around knowledge. There’s lots and lots of good knowledge around R&D, a lot of it freely available. What we want to do is to create the next level up, the next level of detail, so we can help educate Accountants to do their job. We earn most of our money due to R&D tax and providing those services. Our main aim, over the next two to three years, is making sure that Accountants can always do this and be comfortable on where those lines sit.
James: You said the word ‘free’ there. That sounded……quite compelling! How do accountants, get hold of or be able to work with you on this, then?
Luke: Sure, it will be a free solution to accountants. Please contact my team at GovGrant and they can get you started on it (www.govgrant.co.uk). And the reason we do that is, this is our investment in the integrity of R&D tax in the UK, this is not a marketing play. This is literally us saying we are investing in the solution to stop bad practice through some of the technology platforms out there. We want to make sure that the solutions out there are adopted and are appropriate. You get access to our portal. By the end of April/beginning of May, we will go live with our solution for accountants to do R&D claims.
James: You mentioned intellectual property earlier. Outside of R&D tax, how else can GovGrant help Accountants with the work and support they provide their clients?
Luke: With IP in particular, it’s very difficult for all sides of businesses, but particularly SMEs to access good information around intellectual property. So there are two things I would say for Accountants, is, one, use our website (www.govgrant.co.uk). We are very open about trying to demystify the world of IP in a very client-centric, user-friendly way. So there’s lots and lots of good assets on our website that helps people understand what does IP mean.
When Accountants are doing R&D and they think, “Ooh, this looks interesting – we’re seeing our client spend lots and lots of money with Patent Attorneys, what does this look like? Does this align to the Patent Box?” There’s an opportunity to be involved at the top of the funnel. There’s an opportunity to think about how we can do that. One of the things we do is what we call our IP Harvest, and our IP Harvest is a fixed cost of £1,500 to the end client. We will give them a yes or no answer about, “Do you have something that could be patentable?” Now, the answer is usually it depends if you ask a Patent Attorney or whoever else, because that’s true. There are a lot of different factors. But what we try and do, through our IP Harvest, is to very much focus on based on your commercial needs and your outcome and your risk appetite, spend appetite, can you do something, yes or no? And what – the phrase we use is sometimes a patent is a blade of grass. When people think about patents, they think about, “I need to protect my entire field on which I want to operate. This is my playing field, and no one else should be there.” And what a really, really deep patent will do is find the edges of the fence – edges of the field and push up against the fences to make sure that no one else can come on your field.
There are a few negatives about that. One, it’s expensive to get there in the first place, expensive to defend and can be highly litigious. For some clients, that’s absolutely the right thing to do, 100% the right thing to do. But for some, they might just want the blade of grass. They might want the blade of grass because it’d be useful for a financing position. It might be useful to the next investor. It might be useful for the products you sell. Look, I’m a patent-protected product, purely as a shop window-type patent. Patent Box could be the outcome that they’re driving through. The UK’s approach to Patent Box is different to that of other nations, and what the UK thinking on the Patent Box is, is to create economic prosperity in what’s referred to as the spill over effect and the spill over effect is, we’ll subsidise the R&D.
The R&D tax is there to make sure people do it, good, and when those assets are created, we want you to stay here. So if we can give you Patent Box as a reason to stay, the economic spill over, and ‘spill over’ meaning job creation, future tax paying, high-value jobs, high-skilled jobs, these are all the things that make the investment case, if you like, work. Without the spillover effect, the payback on R&D is also not as good.
So, if a client wantsto get into Patent Box and is thinking…..Can I do it for this purpose? No. Can I do it for Patent Box purpose? Yes. How do I get there? How do I walk down that path? And that’s where we come in. We can stand with clients, and almost be the go-between between the Accountants, the Lawyers, to get the right answer for the outcome because clients will find that a difficult thing to navigate. So we will hold the conversation in a way that says let’s focus on this. We’ll instruct the Lawyers, make sure they deliver on this. We stay down the path that we’ve all agreed at the very start because this is what we want to do. This is what the outcome is we’re trying to achieve.
James: I’ve worked in the R&D market myself for a fair while. I’ve realised it’s so important that you partner with, experts in the field, companies like GovGrant, who have a huge amount of experience, have handled lots of claims. I recommend you really should reach out to people like GovGrant, and see if they can provide you with advice and support to help you make robust, good quality claims. Luke, thank you very much. That was a very interesting discussion.
Luke: Thank you, James.