Really fortunate today to have Lee Williams with us, who’s a R&D tax specialist working with Jumpstart, the UK’s leading R&D tax specialists. Bear in mind this was recorded a while ago but the principles still apply and you can listen to the podcast here R & D Tax Credits


Lee Williams :                    Good afternoon Neil. Yes, I’m fine thank you. Thanks for having me.

Neil Foley:                           Yes, pleasure. No, really looking forward to this. What we’re hoping to do over the next 25 to 30 minutes or so is actually explore the world of R&D, what it’s all about, how does it work, and possibly why you should be interested, so it should be a good session. Let’s just start off Lee, if we can, by saying what are R&D tax credits?

Lee Williams :                    Okay, so research and development tax credits is a government scheme that was launched back in 2000, and it enables businesses across all sectors that are working on innovative, difficult, challenging projects, to recoup some of the outlaying costs that they spend, trying to come up with a solution that’s going to solve the problem that they’re looking to solve, and so, they can get around about 26% of their cost back. So, for every £10,000 they spend, they can expect to get back £2,600 in terms of a reduced reduction to their corporation tax bill or tax credit, if they haven’t got a tax bill because they’re loss making.

Neil Foley:                           And is one of the keywords, you used there, was they have to be doing innovative research. Is that one of the keys?

Lee Williams :                    That’s right, yes. A lot of people, or a misconception is that it’s just for scientist and people that wear that lab coats, but actually, it isn’t sector specific at all. As long as you’re looking to push the boundaries in your industry, in your sector, and it’s not something that you’re looking to do that everybody else is already doing, and you can’t just google off an answer to something, or use something that’s readily available. Then there’s likely to be some kind of eligibility there. The trick is knowing what is eligible and what isn’t.

Neil Foley:                           Yes, that must be hard. As they say, if you’re in a lab with your white coat on, I can almost get that. But otherwise, if it’s not sector specific, it can be anything where you’re trying to do something new as a business or new to you?

Lee Williams :                    Absolutely, yes. We’ve got examples across all sectors, but the main claiming sectors especially is manufacturing and software. And in those sectors, actually, it’s quite surprising how many still think that what they’re doing is just routine and not anything new.

Neil Foley:                           So, is it an education process? Because as you say … Did you say in 2000 they launched?

Lee Williams :                    That’s right. Yes, in this country.

Neil Foley:                           So, they’ve been around 17 years?

Lee Williams :                    That’s right, in fact, it’s been around 30 years worldwide but it’s been in this country since 2000, yes. And it is an education it appears as well. As I say, a lot of businesses I meet, still have either not heard of it, or have been told perhaps that they’re not eligible because of what they do. But really, it’s having a deep understanding of they do and where that sits in relation to what’s already known and out there.

Neil Foley:                           So, these are credits you could claim yourself, presumably. And are there … Do they … I know we used to get two budgets a year, Not sure we’re going to get that anymore. I think we’ve only got the one now coming. Do these change in every budget and …

Lee Williams :                    Not every budget. They have changed, in fact, year-on-year they’ve become more attractive for the people that are claiming. In terms of how you claim, there’s three ways really. You can try and do it yourself, but the HMRC manual is around about 500 pages.

Neil Foley:                           Blimey.

Lee Williams :                    You need to try and navigate, and you need to do an online claim, which again, is not without it’s difficulties. You can try and do it through your accountant, who may or may not have experience of doing those type of claims. Some accountants maybe do one or two claims a year, if that. The larger firms may do a few more than that, but they will still, perhaps, not have the technical expertise of your sector to know what it is you’ve done and what parts of it is eligible.

And then there’s specialist providers, such as ourselves, that have got trained technicians that have worked in the industry and understand what goes into a technical project that’s eligible, and also have got an in depth understanding of the rules, because they do several hundred claims a year.

Neil Foley:                           Yes, that must help enormously.

Lee Williams :                    Absolutely, that solves that disconnect in knowledge, really. In terms of an accountant who might rely on the client to tell them what they think they’ve done that’s eligible, and the accountant and their client relying on the accountant to have an understanding of the rules.

Neil Foley:                           Especially with a 500 page manual or whatever.

Lee Williams :                    Exactly, which is ever changing as well.

Neil Foley:                           Really?

Lee Williams :                    As I say, we constantly have to update our knowledge to make sure that we’re up to speed with the changing rules.

Neil Foley:                           And this is essentially to encourage businesses, which are incorporated businesses presumably?

Lee Williams :                    Yes, it has to be limited company. A business has to have a liability to pay corporation tax if they’re profitable.

Neil Foley:                           So this is to encourage incorporated businesses to try different things and new things, without necessarily knowing the result, is that one of the key criteria?

Lee Williams :                    Yes, the key criteria is that you are looking to make and advance in science or technology, which sounds very science-ish , but as I said before, it’s an advance in your sector or the business that you’re trying to do isn’t already readily available. And there has to be an uncertain outcome. You have to be-

Neil Foley:                           A degree of risk.

Lee Williams :                    A degree of risk in terms of, you may never be able to solve the problem. And actually failing project can be eligible as well.

Neil Foley:                           Oh, right. So, you’ve tried something but it doesn’t work on a commercial basis, and you can still be … potentially get some credit for that?

Lee Williams :                    Absolutely, yes. Failure is good for us, because it shows that it was a difficult, challenging project, and again, thousands of pounds would have been spent trying to come up with a solution, which at this stage hadn’t worked, but it could be still in an ongoing project, trying to come up with right solution as well.

Neil Foley:                           Crikey, and if you were … Give us an idea in terms of what businesses have been able to claim for. Because, is it just salaries, is it IT, is it … What sort of things?

Lee Williams :                    Yes. It can be raw materials. So, for manufacturers that are building prototypes and scrapping prototypes because they haven’t worked. All of those raw materials can be used. Salaries is obviously one of the biggest areas of eligibility, and it’s the percentage of time within those salaries that they’ve been specifically working on the difficult, challenging part.

So, it’s not the bit where you’re doing the market research to see if there’s any need to do what you’re going to do, or investigating what’s already out there. It’s the point where you realise there’s nothing out there that can solve your problem, up to the point where you’ve solved that problem, and you’re now ready to go and market it. And then you can also include software that you’ve had to specifically licence for the project, and also sub-contractors if you’ve had to use … Outsource someone for work.

Neil Foley:                           So, the software could be software that is not software you’ve developed, but software you needed for that particular solution?

Lee Williams :                    Absolutely, yes.

Neil Foley:                           So it’s quite broad ranging isn’t it?

Lee Williams :                    Yes, absolutely, yes.

Neil Foley:                           Is that part of the problem, that it’s a bit broad, so you don’t know which bit to attack or …

Lee Williams :                    I think the issue with the eligibility usually comes down to … For instance, a manufacturer thinking, “Well, all we do is try and improve our manufacturing process, or try and improve our product, and we’re constantly doing that. So that’s just routine work.” But actually, what they’re doing, if they’re trying to make their product last longer or fit into a smaller box, or go faster, all of that work is eligible, because it’s not readily available and common knowledge out there.

Neil Foley:                           And I guess, if you’ve got particular processes or systems, as a company, you’re not going to share those anyway, are you? So, this is just not common knowledge to you, presumably?

Lee Williams :                    Yes, or that’s readily available on the internet.

Neil Foley:                           So, is that the test that’s used to say, “Actually, would a competent person be able to find … ”

Lee Williams :                    Yes, absolutely, yes. As an example, recently where it was a software developer, where they thought they weren’t eligible, because what they’ve been asked to develop from their client, the client had the IP. So, they thought they weren’t eligible to claim because the client had the IP, so it’s their product. But actually, the client had no technical expertise, no competent software developing experts. They just merely had an idea, and the software developer had to, at their risk, come up with the solution to the problem.

So, the actual eligibility for the claim would have been with the software developer, because it was his-

Neil Foley:                           Because it was own risk and it was their risk.

Lee Williams :                    Yes, it was their risk.

Neil Foley:                           So, if the company was just paying for time and saying … Then it would have been different, but they were paying for a solution.

Lee Williams :                    Yes, exactly, yes.

Neil Foley:                           So, the interpretation is obviously important in these things, isn’t it?

Lee Williams :                    It is and you need to be able to justify why you’re claiming and explain how you think that fits in with the rules, in case of any query or investigation that could happen, that the HMRC don’t check every single claim they see. So, another misconception is that if you’ve had money back, you think your claim’s been approved, but it could be that it just hasn’t actually been checked at that time.

So, it’s important that you’ve got rational for where you’ve come up with that figure. Both in terms of the costs that you’ve identified and an explanation of the project that you’ve done and why.

Neil Foley:                           Is that your technical notes that you send with them?

Lee Williams :                    That’s right. We write in a comprehensive, technical report that talks about a few of the projects that the companies have done, and not necessarily all of them in depth, but just the flavour of the biggest ones. And say, “This is not necessarily all of them in depth, but it’s just a flavour of the biggest ones.” And say, “This is … ” Say, “One of, or two or three of 10 that are similar.”

And then we do a cross-capture spreadsheet which outlines the costs and the percentages of the people’s time, percentages of raw materials compared to their over all spent. And as long as that sounds reasonable and isn’t out of kilter with what you’d expect, then that should be fine.

Neil Foley:                           And presumably, you’ve … I know have got experts in different sectors, haven’t you?

Lee Williams :                    That’s right.

Neil Foley:                           That must be really hard to do the technical notes and the technical briefing if you’re a manufacturing bod and you’re dealing with somebody in software or something different.

Lee Williams :                    So, going back to what I said about the different ways of claiming, quite often we find that where accountants or other people are being asked to do the technical reports, they usually rely on their client to either do the report for them, which takes up a lot of the client’s time, or the client has to provide a lot of the information again, which takes time. So, having an expert that has worked in the industry, can speak their language, and actually write the report for them, is a massive time saver for the client, and it also ensures that we capture everything that is relevant and eligible to maximise the opportunity to claim.

Neil Foley:                           Because I can well imagine I could do a technical report, and based on my own understanding, because that’s different than knowing what the 500 page manual says is important.

Lee Williams :                    Exactly. We quite often find when clients have done the technical reports, that they actually talk about the product at the end of it, what it does-

Neil Foley:                           Rather than the process.

Lee Williams :                    Rather than the challenges they’ve had to overcome and the processes they’ve had to go through to solve the problem. So yes, writing it in the way that the HMRC would like to see it presented in, and covering the relevant parts is really important.

Neil Foley:                           So, how does the HMRC police this? Because I can imagine some of this is really technical. Some might be where they’ve seen it before, but there might be some which is relatively new to them. So, how on earth do they police it?

Lee Williams :                    Yes, they are starting to look at more and more claims now as their scheme becomes more popular, and unfortunately there’s a few unscrupulous people on the market that are putting in claims that they shouldn’t be. So they are tightening down on the claims that they’re checking, and becoming more and more experienced on what’s out there, and what is eligible up today. So, they don’t check every claim, but around about 13% of all the claims that go in get either queried or investigated at the moment.

Neil Foley:                           That’s quite a high number, isn’t it?

Lee Williams :                    It is, yes. And it’s … The easier the scheme becomes to access the danger is, that can expose people’s lack of understanding of the rules, which is why, perhaps, you need a specialist who can understand the rules, make sure you get the most out of it, but give you the peace of mind that it’s actually going to be robust and defendable. And in the event of a query, they’ll defend it for you, rather than you have to open another can of worm and try and defend what you’ve put.

Neil Foley:                           And I think you said earlier that the fact you’ve been paid, doesn’t mean that there’s necessarily been … You’re past danger point they presume, but they can come back at any stage and say, “Actually, we’ve looked at this again.”

Lee Williams :                    They can. If … In a subsequent year you make a claim and they query it, and they find that you actually weren’t eligible, they’ll go back and they can go back up to seven years I believe.

Neil Foley:                           Really?

Lee Williams :                    We’ve been asked to defend a claim for a client that had claimed themselves, and yes, they were looking to go back seven years.

Neil Foley:                           And if you use somebody like Jumpstart, if 13% is the average in terms of claim queries, if you like, what’s it with Jumpstart, if you go via Jumpstart?

Lee Williams :                    We’ve got a great relationship with HMRC. We talk to them and the treasury on an advisory basis. And so, as a result, our query rate is less than 1%. It’s 0.8%. And as I said, in the event of a query, we’ll defend that for our client-

Neil Foley:                           Because you’ve written the reports and you understood it.

Lee Williams :                    Because we’ve written the report and we’re confident in the quality of it. And we’ve got 100% success rate of defending that 0.8%.

Neil Foley:                           So, your relationship with HMRC is such, if they see one from yourselves, from Jumpstart, they know that you’ve already Jumped through the hoops and have done it the right way, rather than just try it on.

Lee Williams :                    Yes, you wold like to think that it’s because of that, but it’s also the fact that if they do look into it, there’s nothing there that they can query.

Neil Foley:                           No, you can defend it.

Lee Williams :                    Yes.

Neil Foley:                           And how do you get paid then, Lee?

Lee Williams :                    So, we … Most specialist providers get paid on success of the end of the claim. So, there’s no cost to find out whether you’re eligible. So, my role is to talk to the businesses and the people involved and get an overview of what they’ve done, and to put that in front of an expert who’s worked in their industry, the technical analysts, and to find out whether there’s some eligibility there or not.

So, to find out whether you’re eligible costs nothing. And then, once we’re happy that there’s eligibility and the clients decide that they want to work with us, we only charge a percentage of the invoice value, of the tax benefit that’s received at the end, once they’ve had the benefit into their account.

Neil Foley:                           So, it’s once they’ve had the money. So, it’s pain free, isn’t it?

Lee Williams :                    Yes, so they know it’s going to be, yes.

Neil Foley:                           And I think I’m right in saying that it’s, you have to claim for a past year, rather than current year?

Lee Williams :                    Yes, it’s … You can go back two financial years, plus the current year.

Neil Foley:                           So then you claim in the current year, or do you have to wait for your year end?

Lee Williams :                    You can start the process towards the end of the tax year.

Neil Foley:                           Okay.

Lee Williams :                    But the claim can only go in once the tax year’s finished. So, if you’ve got a tax year end of September ’17, you’ve got until the end of this September to claim for September ’15, or that year would be gone. You can also adjust claims. So, if claims have been done previously, we go in and do the current year and think, actually, a whole lot of stuff has been missed out from previous years, we can go back and adjust. As an example, we can adjust September ’15 and ’16, yes.

Neil Foley:                           Oh, so you can go back two years. So, it’s worth people having a look, even if they’ve had a look. And either somebody said, “No, your not eligible, because they didn’t understand it correctly. Or you didn’t explain it well. Or even if you’ve had a small claim and think, “Actually, there … Maybe there’s something else here we can have a look at.”

Lee Williams :                    Absolutely, yes. And it will cost nothing to find out.

Neil Foley:                           Yes, yes. That’s good. Can you give us some examples, Lee, of successful claims?

Lee Williams :                    Yes. So, there was a claim that was for an engineering company over in Lowestoft, in the oil and gas industry. And they had done a small claim through their accountant, but changed accountants, because they felt that the accountant was doing the claim under duress. So, our technical analyst went in and the claim was increased from 40,000 to a 100,000. And what they do is fabrication for the oil and gas industry. So, they have to prove welding techniques and get them certified up to very high levels of specification.

And they spend thousands of pounds proving that technique. There’s no manual that they can look at, no answers they google. They have to just try a different permutations and different substances, until they come up with a solution that’s going to fit the bill. And if they don’t, they don’t get paid for the contract. So, that was an R&D project. And having that understanding of the process and the challenges they face, enabled us to maximise their claim for them.

Neil Foley:                           So, you wouldn’t, as a layperson, you wouldn’t automatically think of that as R&D, would you? You’d think that’s part of what they do, isn’t it?

Lee Williams :                    It doesn’t sound very science-ish does it?

Neil Foley:                           Yes, no. Because, I guess it’s they’re working a lot with the oil and gas industry in Lowestoft. So, yes, it doesn’t sound science related at all, does it?

Lee Williams :                    And actually, decommissioning of oil rigs is a very … There’s a lot of that going on in the North sea at the moment, and there’s high levels of R&D in that, in terms of trying to do that eco-friendly and without waste and things like that, and more efficiently. All those kind of things that ring R&D bells, really. But on the face of it, it’s just scrapping old rigs.

Neil Foley:                           Yes, it just proves you need to know your sector, don’t you, and know what you’re looking for.

Lee Williams :                    Yes, exactly.

Neil Foley:                           So, there’s an example in manufacturing. Any other examples you can think of?

Lee Williams :                    Yes. So, in software, I’ve had several clients in software. But there was one where they have written and office management system. So, it’s for a company that have a team IFEs on the road, self employed. They’ve also got a call-in centre. And then they’ve got all the compliance that they have to manage. And so, there were software packages the they were currently using, but none of them talked to each other, and to actually get a compliant report together was nightmare, because they had use seven or eight different sources.

So, they had an in-house team of software developers that developed a bespoke platform that merged the wholes company’s business from the call centre, the team on the road, client cases and all the compliance stuff. It took them two years to do that. And as I say, our software technical analyst went in there and managed to identify where the eligibility was, because some of it was bolting bits of software together, make it … But the actual integrating into system that talked to each other and was compatible across multi systems was the key and the difficult, challenging bit.

And they were able to identify where the spend was and that was in a company where you wouldn’t think on the face of it there would be any eligibility.

Neil Foley:                           Because as you say, they largely can be using existing software packages. So, it was just the bits that joined it all together.

Lee Williams :                    Yes, it sounds easy, but it’s difficult…

Neil Foley:                           No, I bet … No, I can well imagine. When you think of all the big companies in the UK, whenever there’s merges and stuff like that, it’s always software that’s screw it up, isn’t it?

Lee Williams :                    Yes, absolutely.

Neil Foley:                           I can think of good old Norwich Union where we’re based, and all the problems they’ve had with GA and Commercial Union. It’s all legacy stuff. And one doesn’t talk to the other, isn’t it? So, how busy are you at the moment then if this R&D’s been around 17 years. Has everybody done it?

Lee Williams :                    There’s more and more people who have heard of it and are claiming some way or the other, and some more challenges, really, too, to show them that actually our expertise can add value, and that value’s going to be, obviously, to either try and get more out of the claim for the client, but it could also just be the time saving, in terms of them not having to do the technical reports themselves, and the peace of mind of knowing that our expertise means they’re not going to get queried on the back of it.

So, it’s usually one of those things that swings it. We work with lots of accountants that use us as a specialist provider, because they simply don’t understand that technical side of things. And again, that they rely on their clients and they recognise that. And to use us as an expert. A bit like a doctor if you’ve got a bad back, they’ll refer you to a chiropractor that’s going to solve it. They’re quite happy to use us as a specialist provider for that technical area.

Neil Foley:                           How big are the technical reports that you’re writing then for them?

Lee Williams :                    It really depends on the size of the company and how many projects they’re doing, and their complexity of what they’re doing. So, it does … It’s wide ranging really.

Neil Foley:                           From what to what?

Lee Williams :                    I’d say they’re usually around 10 plus pages for a micro claim onwards, but they go into a lot of detail, as I say, about-

Neil Foley:                           That’s a lot of work, isn’t it?

Lee Williams :                    Yes, it’s a good few days’ work for it.

Neil Foley:                           Yes, it certainly is, isn’t it? So, talk me through, Lee, so that I … Because I’m not sure I do understand. If I’ve made … If we use the argument at 10 grand, and I’ve spent 10 grand on my eligible spend, and I’ve made a profit as a company. So, last year I made a profit, how does that 10 grand work? Is that just an allowable business expense?

Lee Williams :                    It’s just a reduction in your corporation tax, on your CT600 tax return. So, there is an enhancement rate of 230% of your actual eligible spend. You say times the eligible, the 10,000 by 230%, so your costs go up by that amount, and then that reduces your profit, and then you pay tax of 20% on the reduced amount.

Neil Foley:                           So, we’re not going back and rewriting the accounts, it doesn’t touch the accounts.

Lee Williams :                    No, it doesn’t touch … It’s just for the purpose of the tax return. Yes.

Neil Foley:                           And alternatively, we’re embryonic, or we have made a profit yet, there’s something you can do with that as well, isn’t there?

Lee Williams :                    Absolutely, yes. So, another misconception is if your loss making, or if the enhancement means you go into loss, you haven’t got a tax bill, so a misconception is really, if you’re not paying tax, then you can’t get cash back. But actually, you can surrender the losses for 14.5% cash, which actually works out to about 33% of your initial spend. Or you can carry forward the losses to the next tax year if you think you’re going to make a profit, and then you’d save 20% on that enhanced amount the following year.

Neil Foley:                           And if you give away your … Give away is the wrong term, but if you surrender your losses … Because normally you carry forward losses indefinitely. You can no longer do that. Then for this element, for the R&D, for the 10 grand or whatever it is.

Lee Williams :                    Yes. So, if you surrender losses, you get 14.5% cash and that’s it, you can’t carry them forward.

Neil Foley:                           Right.

Lee Williams :                    But you don’t have to surrender all of them. You can surrender an amount to recover as much cash as you need, and then carry forward the rest of it.

Neil Foley:                           So, if cash wasn’t an issue, you wouldn’t surrender? You probably .. .As long as you thought you’re going to be profitable at some stage, you would wait to get into profit?

Lee Williams :                    Yes, because … And your accountant would be the best person to advise on the implications of that. We merely just work out the calculations and say, “These are the options.” Most businesses in that position, because of the nature of where they are in the business, tend to take the cash refund, but it’s entirely up to the client.

Neil Foley:                           I didn’t realise you could do a mix and match and whatever, as you say suits, and whatever they need to keep body and soul together while they’re pursuing the dream. Okay, so how do people get in contact with then, Lee? Because you’re offering, what you’re saying to people, is have an initial conversation. No charge or obligation. How do they get in touch with you?

Lee Williams :                    Yes, more than happy to speak to anybody, as I say, to offer complimentary assessment of their eligibility. Our telephone number’s 077 9420 1990.

Neil Foley:                           Do you want to say that a bit slower?

Lee Williams :                    077 9420 1990. Or you can email me on Lots of UKs in there. Or our website is

Neil Foley:                           Okay. And what we’ll do is we’ll have transcript of this available on our blog and Lee’s details will be down there for that. And finally Lee, I wanted to ask you a question in terms of something I always ask people. In terms of, I’m a fair bit older than you, but if you could go back to being 18 or 20, knowing what you know now, what would you tell yourself?

Lee Williams :                    I’d say to myself, “Don’t ever accept second best.” And, “Always-”

Neil Foley:                           Well, you’re a Liverpool supporter.

Lee Williams :                    Exactly.

Neil Foley:                           That can’t be true, Lee.

Lee Williams :                    Yes, never accept second best, and always do something that makes you happy and do it with passion.

Neil Foley:                           Yes, that sounds like good advice. Well, thank you very much for your time Lee, it’s been fascinating. And hopefully everybody, now you know more about R&D. It’s certainly a subject that’s worthy of investigation, even if you never thought you’re in that field. And have a chat to Lee. And thanks very much for listening, and see you again Lee.

Lee Williams :                    Thanks Neil.