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 it, R&D for tax purposes needs to satisfy two core tests:
R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology, for example:
With large sums of money involved, complicated regulatory frameworks and data sensitivity- FinTech needs 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.
At a top level there are five distinct areas which R&D claims apply to in FinTech; staff costs, subcontractors, externally provided works (EPWs), software, consumables e.g. 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 directly contributing to the R&D effort, then there is a good chance their costs can be included.
Indirect staff are people who are also involved in supporting the R&D project such as administration, finance, and personnel activities where they enable the R&D to happen. These costs are usually overlooked but have a rightful place in 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 costs are qualifying expenses for the R&D tax relief scheme. For overseas subcontractor costs new rules apply for accounting periods starting on or after 1 April 2024.
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 can form part of the claim. For overseas EPW’s costs new rules apply for accounting periods starting on or after 1 April 2024.
The proportion of heat, light and power that is used for the R&D project is also qualifying expenditure.
Any software used directly in the R&D is a qualifying cost. For accounting periods on or after 1 April 2023 costs related to datasets and cloud computing can also be claimed.
The SME and RDEC schemes will merge into a single scheme for accounting periods starting on or after 1 April 2024.
With the SME R&D tax credit scheme you can currently claim tax relief of up to 33% on your qualifying R&D expenditure incurred up to 31 March 2023. After this new rates will apply.
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The Research and Development Expenditure Credit (RDEC) rate has increased over the years, companies can get over 10% of their R&D expenditure incurred up to 31 March 2023 refunded. Then this will increase up to 15%.
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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.
Cryptocurrency is a typical example of 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.
