Jumpstart managing director, Brian Williamson
Jumpstart has helped its clients to reclaim nearly £100m in research and development tax relief and is now preparing to aid its customers in raising finance too. BQ Scotland editor Peter Ranscombe catches up with the consultancy’s managing director, Brian Williamson, to find out more.
When it comes to Scotland’s fledgling space industry, carrying out research and development (R&D) is all in a day’s work. While other sectors of the economy may only be able to innovate now and again, companies working in the space sector need to come up with creative solutions to problems every day.
“Space is one of the few areas in which you can say the sky is not the limit,” says Brian Williamson, managing director of Jumpstart, an Edinburgh-based consultancy that’s at the forefront of helping companies across a broad range of sectors to claim R&D tax relief from HM Revenue & Customs.
Gordon Brown introduced R&D relief on corporation tax in 2000 when he was Chancellor of the Exchequer. The scheme was designed to encourage businesses to invest in R&D. “There has to be a global advance in science and technology to allow a company to claim R&D tax relief,” explains Williamson. “Everything is so new in the space sector – in other industries, you have to stop and ask yourself ‘Has this been done before?’, but space has an almost infinite range of possibilities across size, complexity and volume.
“Over the past seven years, there’s been an acceleration in the number of advances being made. Our prediction is that, in the space industry, that acceleration is going to get even faster.” Williamson points to the ‘internet of things’, the concept that each and every piece of technology in our homes, workplaces and public spaces will be connected to the world-wide web. Already, Centrica – the owner of the British Gas and Scottish Gas brands – is offering customers the chance to use Hive, a system that allows them to control their central heating from their smartphones, turning the thermostat up remotely if they’re on the bus home and feeling a wee bit chilly.
The next step is the ‘internet of everything’, in which artificial intelligence will play an increasingly important role, from fridges that know when they’re running low on milk and can reorder such groceries for delivery from the local supermarket, all the way through to litter bins in public parks that will tell the refuse workers when they need to be emptied.
“The internet of everything may be firmly grounded on Earth, but it’s satellites through which all of this data is going to pass,” Williamson says. “There will be plenty of opportunities for innovation when it comes to developing the processing technology that will be needed to handle these vast amounts of data and information.
“This technology will also be needed to meet the requirements of the ‘big data’ users. We’re already seeing products like Aviva’s app for monitoring customers’ driving habits, rewarding safe drivers with lower premiums, and soon the Fitbit on your wrist is going to be tied in with your health insurance policy, giving you discounts if you exercise or charging you higher premiums if you don’t look after yourself properly.
“All those big data applications will also need innovative new technologies to handle and process all the information they will generate. New software and hardware is going to be needed.
“The information generated by big data applications and the internet of everything will also trigger the need for physical assets – not just cheaper satellites but also systems for putting them into orbit and for handling the data back on the ground. The power-to-weight ratio will be key – it’s like the trade-off between having the world’s strongest man who’s also the world’s fastest marathon runner – they’ll have to have a huge capacity but will also need to be super-fast.”
Jumpstart knows all about innovation. The company was launched in an attic in 2008 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. 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. Since then, the company has helped its clients to reclaim nearly £100m in tax relief, a landmark figure.
“We measure our success in the amount of money we’ve been able to claim back for our clients – not how much money we’ve earned from our clients,” Williamson points out. “The money that our clients claim back from the taxman is used for a whole variety of purposes.
“I visited one of our customers in Glasgow recently and he pointed to an enormous piece of capital equipment. He tells everyone that visits his site that he was able to buy that piece of equipment using the money Jumpstart had claimed back for him.”
The firm helps its clients to navigate the path towards filing an R&D tax relief claim. It sits down with customers to work out which activities qualify for which schemes, a crucial step as understanding the rules is important and can affect the amount entrepreneurs can claim.
“If a company receives a grant for a core piece of technology – for example, from the European Union’s Horizon 2020 programme – then it flips that company from the small scheme into the large scheme,” says Williamson. “That would generally reduce the amount they can claim by two-thirds.
“However, for one of our clients, we identified 12 projects they were working on and we were able to technically isolate their grant funding to just one of those projects. They were able to put a claim through for one project under the large scheme and managed to retain the other 11 projects under the small scheme. The best way to do that is to get involved with the client at the earliest stage possible, when they’re putting in their grant applications.”
Another factor that businesses need to consider is whether they can claim R&D tax relief if their parent company is based overseas. “If you’re eligible to pay corporation tax then you can still claim,” Williamson says. “Another factor that may have an impact comes with the ownership structure. If an overseas company owns less than 25% of the shares then it’s classified as an investor, but if it owns more than a quarter of the shares then a percentage of the headcount of that company has to be taken into account – and that’s often enough to flip the claim into the large scheme instead of the small scheme.”
One of the key 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.
Now, Jumpstart is preparing to help other businesses access a new source of funding. “We’re in the middle of discussions with a finance house about not only advancing money to clients for claims that have already been made or are about to be made, but advancing money to clients before any R&D work has actually taken place,” Williamson reveals.
“For example, if a company is going to do a lot of innovative work in the space industry in 2017 then we could come in and do some due diligence work to examine their plans. A finance company may then be prepared to lend that company money based on our assessment of what they could claim back in tax relief in 2018.
“Ultimately, that’s what companies require – it’s fine to get a reward based on what you’ve spent, but you have to be able to spend that money in the first place. It would be great if we could advance companies money ahead of that.” Another key factor will be for the UK Government to pull the economic levers at its disposal to stimulate investment. Williamson highlights the opportunity to tailor R&D tax relief.
“At the moment, R&D tax relief is uniform – so you can receive the same rate whether you’re a baker making muffins or a technology company producing satellite components,” he says. “With no disrespect to our bakers, the UK isn’t going to become the leading country in the world for muffins, but we do have a very real opportunity to become a world leader in satellite technology and in the processing of all the data produced by satellites.
“Ministers have managed to do it before, using techniques such as the Seed Enterprise Investment Scheme (SEIS) to stimulate interest from the financial community. It’s one area that could also become even easier post-Brexit because we’ll only have the constraints that we put on ourselves and not have any from outside bodies such as the European Commission.”