Jumpstart managing director Brian Williamson
Jumpstart made a name for itself by helping firms to access research and development tax relief. Now the consultancy has come up with an innovative way to help fund those activities, as managing director Brian Williamson explains.
Research and development (R&D) is at the very heart of businesses that innovate. Whether it’s creating a product that will turn an industry on its head or coming up with a service that will disrupt a market, R&D is the launch pad that sends entrepreneurial companies on the path to success.
Jumpstart’s mission is to make sure its clients receive the recognition they deserve for their hard work. The Edinburgh-based consultancy helps companies to claim Corporation Tax relief against R&D spend, which was introduced in 2000 by then Chancellor of the Exchequer, Gordon Brown
Since Jumpstart was launched in 2008, the business has helped companies to reclaim nearly £100m, giving them the cash they need to go from start-ups to scale-ups and fund further innovation. For large businesses, the scheme can deliver a net benefit of 8.8% (after tax), while smaller firms can claim back up to 26% of qualifying costs, highlighting the size of the opportunity.
Building on the success of its bread-and-butter operations, Jumpstart has been looking for other ways that it can help its customers. The company, in partnership with a finance house, is busy developing a service that will lend cash to clients based on the R&D tax relief they are forecast to claim from HM Revenue & Customs.
“We expect there will be three streams to the new service,” explains managing director Brian Williamson. “The three phases will suit companies at different stages in the R&D process.
“At the moment, if a company has its year-end in December then we would normally take a look at its accounts once they’ve been prepared and advise on what level of R&D tax relief it could claim. The company would normally receive that relief around six months after its year-end.
“In our first stream, we would look to speak to the client before its year-end – in November, for example – and advance it the amount that we forecast it will reclaim from HMRC. That means the customer is getting the cash about six months earlier than it normally would.
“In the second phase, we could visit a client mid-way through its financial year and calculate what it is likely to reclaim in R&D tax relief. If we were to advance the client that sum at that stage in the process then it would be receiving the money a whole year earlier.
“The third phase is perhaps the most innovative and most disruptive – if we sit down with a client and work out how much R&D work it’s going to carry out at the start of its financial year and advance it the money at that stage then that company is getting the cash in its hand 18 months earlier. That means it is getting the money it needs to fund its R&D in the first place.”
The service could open its doors as early as October, in time for businesses that have their year-end on 31 December. An initial pot of £5m is likely to be available to test the demand for the innovative scheme.
There is still quite a bit of development work to be done but Williamson is confidant Jumpstart can get there. “It is testament to the expertise of Jumpstart and our reputation as the purists within the R&D tax relief marketplace that large financial institutions would rely on our due diligence to make a lend at the risker end of the lending spectrum,” he says.
“This idea is likely to appeal to intellectual property (IP)-rich companies. There has to be a global advance in science and technology to allow a company to claim R&D tax relief.
“IP-rich businesses are more likely to make larger R&D tax relief claims than firms operating in traditional industries. That’s because they’re carrying out more ground-breaking innovation.
“IP is like the hub at the centre of the wheel, with lots of spokes coming off it. If you have strong IP at the hub then those spokes can include services such as R&D tax relief or borrowing against the value of your IP.”
Coming up with such innovative ideas is nothing new for Jumpstart. The company was launched from an attic flat by founders Richard Edwards, Don Galloway and Stuart Wyse, with Williamson coming on board in the early stages as a consultant and then taking over as managing director in 2012, as well as investing in the business.
Wyse had been running an R&D tax relief consultancy in Canada and was one of the first people to bring the idea to the UK. Instead of employing accountants to analyse its clients’ figures, the firm uses its technical expertise to spot what’s innovative about its customers’ R&D processes.
The business now operates throughout the UK. Having established itself in Scotland, it is now gaining a greater share of the market South of the Border.
One of the important drivers for Jumpstart’s own growth came in 2014 when it raised £3.4m in equity funding from the Business Growth Fund (BGF), the £2.5bn investment vehicle launched in 2011 by Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered.
BGF initially invests between £2m and £10m into a business in return for a minority equity stake and a seat on the board; the companies it backs are privately-owned or listed on the Alternative Investment Market (AIM) and typically have revenues of between £5m and £100m.
As well as providing cash to help grow the business, BGF introduced the company to Jim Faulds, who became its chair. Faulds is best known for founding his eponymous advertising agency, which became the largest in the UK outside London.
Williamson is no stranger to innovation himself. After studying for his diploma in mechanical engineering from Glasgow Caledonian University, he gained management experience at first Weir Pumps and then across a range of companies in various industries, including construction, electronics, heavy engineering, oil and gas, and petrochemicals.
He started his first company in the automotive sector in 1995 and – after building the business over three years to £5m of revenues before selling his stake to his fellow shareholders – he switched into oil and gas, where he started his next business.
He sold the company to its management team in 2004 and began investing in start-ups. Along the way, he had become chief executive of The Learning Organisation (TLO) in 1999 and led a management buyout in 2000. TLO helped more than 80,000 people to start their own businesses and provided training for a further 25,000 each year, with Williamson selling his stake in 2007.
Now, alongside his role at Jumpstart, he is also chair at Glasgow-based recruitment firm Brightwork and an “entrepreneur in residence” at Kissing with Confidence, a business development consultancy in Glasgow. He was also one of the early supporters of We Are The Future, the international entrepreneurship organisation launched by Bruce Walker.
While the concept of receiving a cash advance based on potential R&D tax relief claims sounds very attractive, Williamson is quick to point out the need for accurate and detailed record keeping. If a finance company is prepared to stump up the money based on Jumpstart’s judgement then it will need reassurance over the figures.
“To start with, keeping accurate records is essential because it shows that you’re in control,” he explains. “A sign of a successful company is that it’s on top of its finances and is keeping detailed records so it knows what’s its financial position.
“Record keeping becomes even more important in situations such as ours, where we’re looking at advancing cash to a client. It helps to satisfy the burden of proof.
“If a bank lends money to a business then it’s not going to wait until the end of the 18-month loan period to monitor how the company is spending the cash. Instead, it’s going to want to see monthly management accounts so it can keep an eye on the situation.
“I expect that the same will be true when it comes to the third stream of our scheme. If a finance company has advanced cash to a client 18 months ahead of when it will receive the R&D tax relief then it will want to monitor how the money is being spent.
“If we receive monthly reports then we’ll be able to monitor the R&D project and say to the finance company ‘Yes, the client is 99% to plan or 103% to plan’. If it’s down at only 48% to plan then that’s when we would start needing to have conversations with the client and the finance company.”
While R&D may sound like the domain of boffins wearing white coats in laboratories, Williamson highlights the broad spread of businesses that can apply for tax relief. “It’s not just about companies working in life sciences or big data,” he says.
“Bakers may well be carrying out R&D without realising it when they’re creating recipes or solving problems in their production processes. When it comes to farming, we’ve helped a broad range of companies, from those developing nutrients for livestock through to those producing machines to help spread slurry for growing crops.”