Financial Technology (FinTech) has seen exceptional growth in Research and Development (R&D) tax relief claims in the last few years. In 2012, investment in FinTech internationally was $8.9bn whereas in the 12 months to July 2018 that figure rose to $57.8bn, and indications are that it will continue to grow exponentially in 2019. R&D claims will continue to rise alongside it.
What is driving growth in R&D claims in FinTech?
Disruptive software and other technological companies – large and small – have been developing products and services to improve CX (Customer Experience) by improving the speed and security of transactions and the accuracy of financial predictions. This has been a wake-up call to the notoriously slow-moving financial sector that has historically been slow to embrace change.
Who is driving growth in R&D claims in FinTech?
You may be surprised to learn that it is not only the big players in the financial sector such as banks and investment companies that are driving the upturn in R&D claims in FinTech. The increase in smaller companies investing in the development of their own solutions through work that qualifies for R&D tax relief has had a significant impact on the growth of claims.
For example, more and more companies are investing in R&D by applying technology to their financial services such as portfolio management, investments, purchases, payments, international trading, data security and regulatory compliance.
Furthermore, many financial companies, which include Independent Financial Advisers (IFAs) and accountants, have historically paid thousands of pounds in fees each year for licensed software. By developing their own alternatives instead (either internally or through a 3rd party developer) they can eliminate these licensing costs and create a bespoke system that works better for them. As this work qualifies under the R&D scheme, they can also recoup a portion of the development cost, so it soon becomes a win-win.
Which financial sectors are benefiting from R&D tax relief?
Typical examples of R&D work in FinTech that qualify for tax relief are:
- Accounting Software
- Personal Wealth / Investment Software (IFAs)
- The replacement of expensive traditional software with bespoke alternatives
- Security and Data Protection
- AI / Machine Learning
- Risk Management and Compliance Software
- Complex CRM development
- Peer-to-Peer Software platforms (trading and transactions)
Why UK FinTech SMEs should be more proactive in claiming R&D
SMEs who develop smaller, disruptive financial solutions are making a considerable contribution to the advance in technology and should therefore be looking to potentially save thousands of pounds with an R&D tax relief claim.
Over half of the emergent, disruptive FinTech start-ups in Europe are based in the UK where there is a very strong representation internationally for software products relating to data/analytics, anti-fraud technology and risk management.
Whilst it could be argued that a significant portion of the investment in FinTech is taking place in China and the USA, the UK is well placed to compete on the global market. London is a world leading finance centre, but there are also strong financial services sectors in Manchester, Birmingham, Edinburgh, Belfast and Cardiff.
According to a government commissioned report, “The UK Government is committed to supporting Fintech companies; creating jobs and growth as well as further strengthening our position as the world’s pre-eminent financial services destination. Working with colleagues across government, UK Trade & Investment (UKTI) are leading efforts to attract more inward investment to the UK’s Fintech sector and support UK-based Fintech companies seeking to internationalise their business and services.”
Smaller FinTech companies should carefully review their position with R&D claims
If you are a FinTech company you should consider carefully whether your business qualifies for R&D tax relief. Many smaller businesses assume that it is only larger organisations that benefit from R&D tax relief, but as outlined above this is not the case.
RandD Tax are happy to provide a free of charge consultation to help you determine whether you qualify for tax relief. Get in touch and we’ll be happy to talk you through the process.