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R&D tax credits for FinTech companies

Software touches every industry these days and the rise of the word FinTech is the generic term for technological enablement in the financial services industry. As Forbes highlighted in their article about the history of fintech, this is not a new concept but an evolving subject that is now in the spotlight for all the right reasons.

But with such a long history, what do today’s developments look like? R&D for fintech companies is simply the ongoing development of solutions. As the world evolves the baseline keeps on moving – to achieve an advance is no easy challenge.

At the heart of R&D for tax purposes, development needs to satisfy two core tests:
  • An advance in science or technology
  • Scientific or technological uncertainty
R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology, for example:
  • New efficiency or solutions from software
  • Reduction of manual intervention
  • Artificial intelligence in the financial services chain
  • Data analytics tools
With large sums of money involved, complicated regulatory frameworks and data sensitivity- FinTech need to create solutions against a backdrop that keeps on moving. The key point is establishing the baseline knowledge at the time of starting the project and as the project evolves, so does the baseline.

What qualifies for R&D in FinTech?

At a top level there are five distinct areas which R&D claims apply to in FinTech; staff costs, subcontractors, externally provided works (EPWs), consumables and heat, light and power. This data is used extensively in your R&D claim, find out more about each type below.

The majority of most R&D tax relief claims are based around staff costs. This includes people directly involved with the activity and others who are indirectly involved.

An example of direct costs would be a specific solutions architect – they tend to be defined, technical roles who are the doers of the project. A common misconception is they have to be scientists and academics, this is incorrect. If they are a competent professional whose expertise is part of the R&D effort, then they should be included.

Indirect staff are people who are also involved in supporting the R&D project such as management, procurement, control functions, where they help enable the R&D to happen and also are part of the management of the process. These costs are usually overlooked and can be a big impact on the claim.

Where you may not have the expertise in house, you may rely on a third party to help with part of the R&D process. These claims are qualifying expenses for the R&D tax relief scheme.

Like subcontractors, you may not have directly employed staff but want to have resource for a particular role who act in the same way as employees – i.e. under your care custody and control. These costs form part of the claim.

Any items that are used only for R&D and have no use once the project is completed so consumed by the project is also qualifying expenditure.

When you know how much R&D you are doing, you can then attribute a proportion of your heat, light, power & water to the R&D tax relief claim.

Typical scenarios

Business Intelligence for compliance services

Big data is a core feature of most financial businesses and making sense of that data to drive better decision making is always on the agenda. Our client wanted to create software solutions that removed the common issues of data integrity, input, unification and where the data is pulled from. With an existing infrastructure where the data tables had been built over decades, creating something that made sense of these types of scenarios was the end game. Some parts of the development were completed quickly, but still difficult and others continue to be worked on till this very day.

Bitcoin trading platforms

Cryptocurrency is a typical example of a Fintech. The R&D is significant as it focuses on the ever evolving world of blockchain that is still in relative infancy and the need to trade assets. No solutions currently exist to make trading cryptocurrency a comparable machine to the FX industry. So any companies in this area know that most of what they are building will be first to market.

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