Innovation & Technology Seminar - April 2017
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PKF Francis Clark is hosting the fifth annual Innovation and Technology conference, which is taking place at Plymouth Science Park on Tuesday 25 April. Alongside tax experts from PKF Francis Clark, there will also be presentations from tech entrepreneur Craig MacAlpine, former CEO and founder of EPA Cloud, who will share his experience with you, and Kaya Elkiner, Head of Patents at Ashfords LLP.
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Innovation & Technology Seminar - April 2017
- 1. Chairman’s Welcome Stuart Rogers April 2017
- 3. Programme pkf-francisclark.co.uk 9.30am Introduction Stuart Rogers 9.40am Industrial Strategy Paper Stuart Rogers 9.55am Update on R&D Tax Incentives Katie Farley 10.10am Welcome to Plymouth Science Park Merika Kindlon 10.20am Business Case Study Jon Catney 10.45am Coffee 11.15am Getting Investor / Sale Ready Nick Woodmansey 11.45am Securing Human Capital Martin Brown 12.05pm Patent Matters Kaya Elkiner 12.25pm Business Case Study Craig MacAlpine 12.55pm Round Up Stuart Rogers 1pm Lunch
- 4. www.pkf-francisclark.co.ukpkf-francisclark.co.uk Innovation & Tech Business Lifecycle
- 5. Industrial Strategy Paper Stuart Rogers April 2017
- 6. The Fourth Industrial Revolution pkf-francisclark.co.uk Klaus Schwab Chairman – World Economic Forum
- 7. The Fourth Industrial Revolution pkf-francisclark.co.uk The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. https://www.youtube.com/watch?v=SCGV1tNBoeU
- 8. Building Our Industrial Strategy • ‘Ingenious Britain’ - the Dyson report (2010) • BOIS - Published January 2017 • Signposting Government Policy • Refers heavily to 4IR • Submissions due in by 17 April 2017 • Outputs for Autumn Budget 2017? pkf-francisclark.co.uk
- 9. Building Our Industrial Strategy pkf-francisclark.co.uk https://www.gov.uk/government/uploads/system/u ploads/attachment_data/file/586626/building-our- industrial-strategy-green-paper.pdf
- 10. The Pillars • Investing in science, research & innovation • Developing skills • Upgrading infrastructure • Supporting businesses to start and grow • Improving procurement pkf-francisclark.co.uk
- 11. The Pillars • Encouraging trade & inward investment • Delivering affordable energy and clean growth • Cultivating world leading sectors • Driving growth across the whole country • Creating the right institutions to bring together sectors and places. pkf-francisclark.co.uk
- 12. The Highlights • Changes to R&D tax credits mooted but didn’t materialise • Doubling of export finance capacity to £5bn • Patient capital review • Launch of new Government Export website pkf-francisclark.co.uk
- 14. An update on R&D tax incentives Katie Farley
- 15. pkf-francisclark.co.uk The relief For an SME, for every £1 of qualifying R&D expenditure, an additional £1.30 is allowed in its corporation tax computation as a ‘super deduction’. This means total relief equal to 230% of the actual expenditure is available. For every £1 spent – 44 pence of tax saved! Repayable credit for loss making companies – 14.5% of ‘surrenderable loss’. Research & Development Tax relief
- 16. R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in a company’s own state of knowledge or capability R&D defined
- 17. pkf-francisclark.co.uk Trends • 2014/15 £1,095 million claimed under SME scheme • South West SME claims totalling c.£80m from 1470 claims • National claims • Manufacturing, ICT, Professional, Scientific & Technical • Locally • E-commerce, Stock Systems, Food & Drink, Manufacturing development
- 18. pkf-francisclark.co.uk Changes to consumables Introduced in FA 2015 (from 1 April 2015) • Manufacturing trials • First in class • Prototypes • Record Keeping
- 19. pkf-francisclark.co.uk Measure of staff costs • Staff costs, sum of • Emoluments paid by company including all salaries, wages, bonuses other than benefits in kind • Secondary class 1 NI • Pension contributions • Cash reimbursement of expenses • Redundancy payments
- 20. pkf-francisclark.co.uk HMRC • Advance assurance • Launched November 2015/March 2016 • New national team • 4 Locations – Manchester, Leicester, Portsmouth and Croydon • Aiming for 5-12 day pick up of online claims & to process 95% within 28 days of receipt • ‘Standard’ claim template • Staff receiving technical training
- 21. pkf-francisclark.co.uk Going Forward… • Reduction in CT rate • Increase in effective value of RDEC • Decrease in differential of surrendering loss • Brexit • CT rates • State aid implications • Change in approach by HMRC • Hot off the press
- 22. Welcome to Plymouth Science Park Merika Kindlon
- 23. Jon Catney Founder & CEO
- 24. Break
- 26. Overview Selecting the right funding • Range of Options • Choosing the correct source for the business Getting ready • Requirements for all • Specific for the funding source pkf-francisclark.co.uk
- 27. pkf-francisclark.co.uk . Selecting the right funding: Options • Friends / family • Angel investors • Venture capital (VC)/ Private Equity (PE) Equity • Banks • Other organisations • “Alternative finance” • PE / VC Debt • Government • EU • Intermediaries Grants Crowdfunding
- 28. pkf-francisclark.co.uk Selecting the right funding: Choosing Understand funding options and funders requirements Understand your requirements • Competitive process • Tailor your pitch but do not change your your business model to fit • Know the deal breakers: theirs and yours
- 29. pkf-francisclark.co.uk . • Business plan • Projections • Housekeeping Getting ready: General
- 30. pkf-francisclark.co.uk . • Industry & current operations • Future strategy • Communicates “business case” • Professional • Especially important for start-ups • Tailored Business plan
- 31. pkf-francisclark.co.uk . • Realistic • Supported • Add up • Underpin business case • Integrated forecast • P/L – Monthly then annual • Cash flow & balance sheet • Cash headroom • Sensitivities – Negative & Positive • Written assumptions Projections
- 32. pkf-francisclark.co.uk . • Personal v business • Licences / contracts / property • IP ownership in the company? • Books and records in order? • Tax - VAT, PAYE/NI • Statutory Accounts/management accounts Housekeeping
- 33. pkf-francisclark.co.uk . • Equity • Debt • Grants • Crowdfunding Getting ready: Specific
- 34. pkf-francisclark.co.uk . Equity: Funders requirements • Growth • Often no market so are “locked in” • Exit route and returns to the investor
- 35. pkf-francisclark.co.uk . Equity: Getting ready • Be prepared to discuss valuation • Investors expertise vs. loss of independence? • Passive / active? • Restricted matters? • Potentially more subjective: softer skills / enthusiasm / excitement • SEIS/ EIS
- 36. pkf-francisclark.co.uk Debt: Funders requirements • Cash flow – serviceability / headroom / sensitivity • Security / personal guarantees • Covenants – achievable / appropriate • Government initiatives – eligibility
- 37. pkf-francisclark.co.uk . Debt: Getting ready • Numbers and accounts in order • Projections • Credit rating • Shop around
- 38. pkf-francisclark.co.uk • Project – i.e. usually not for general expenses • “Project” eligibility – sector, size, location… • Ongoing compliance . Grants: Funders requirements
- 39. pkf-francisclark.co.uk . Grants: Getting ready • Timescale – prescriptive, process and panels • Match funding • Competition • Cash flow – claim in arrears • Admin • Patience
- 40. pkf-francisclark.co.uk . Crowdfunding • Debt / equity, subject to conditions • “Reward” • Variety of platforms • Opportunity for exposure & feedback • Marketing / enthusiasm for business
- 41. pkf-francisclark.co.uk . Summing up Suitable funding Robust Business case and appropriate Management Detailed financial projections and documented assumptions Know the ‘deal breakers’ Allow sufficient time
- 42. Securing Human Capital Martin Brown
- 43. pkf-francisclark.co.uk Some of my experience 12 Years A [Reward Specialist] Share Plans for tech incubator start ups Incentives in Family businesses Director/ Shareholder Exit Internet retailer Management advice on sale of Medical tech Company Incentive planning Leading digital effects company UK start up using US style share plans Management Advice on takeover by global digital music platform Helping Company Owners and Management and Shareholders with: Reward “EMI” Share Plans Sale of Companies Listing of Companies
- 44. pkf-francisclark.co.uk Terrible topic Title! • Please don’t call your employees Human Capital! • (Unless you’re trying to persuade the FD to spend money) • Securing?! • This is one for HM Prison Service! Securing Human Capital
- 45. pkf-francisclark.co.uk Recruit: Being competitive in the recruitment market • Punch above your weight Retain: Maximising Staff Retention • Keep hold of your good people • Manage toxic workers Motivate: Get the best from your people • A high performing culture • Incentives aligned to strategy Recruit, Retain, MotivateSecuring Human Capital What we’re really here for
- 46. pkf-francisclark.co.uk • Pay and rations • Non cash perks • Culture • Long Term incentives: Share “Ownership” can offer an edge Attracting the best
- 47. pkf-francisclark.co.uk Lost Staff Cost You OVER: £31,000* Each! *Oxford Economics study in 2014 indicated average costs of £31,808 to replace an IT and tech professional. Retaining staff
- 48. Long Term Incentive And Retention • Shares can make a great incentive for fast moving, innovative businesses • Incentive – Employee value directly linked to shareholder value • Long Term Retention – Value linked to Exit • Low cash cost to business – funded by ‘buyer’ • Communication is key • VALUE = PERCEPTION pkf-francisclark.co.uk
- 49. Tech Challenges & advantages pkf-francisclark.co.uk • Pre revenue tax valuation • Post revenue sector multiples • Exit Driven • Openness
- 50. Tax • It is EXCITING (honest)!! • Right = 10% • Wrong = 60.8% (Very Wrong = Over 100%) OK Maybe not exciting: but expensive and complex pkf-francisclark.co.uk
- 51. EMI plans • A great fit for many innovative, fast growing businesses • Tax Advantaged Option 10% tax • Easy to deal with leavers • Flexibility – performance conditions • Very similar company conditions as EIS pkf-francisclark.co.uk
- 52. Kaya Elkiner Head of Patents, Ashford LLP patents@ashfords.co.uk Intellectual Property Innovation & Technology
- 53. patents@ashfords.co.uk INTELLECTUAL PROPERTY in the 4th INDUSTRIAL REVOLUTION – KAYA ELKINER What is the 4th Industrial Revolution (4IR) ? • 1IR – (18-19th century) – industrialisation and urbanisation • 2IR – (turn of 20th century) – mass production, energy, steel • 3IR – (1980’s onwards) – information technology, digital • 4IR – now? o Artificial Intelligence, The Internet of Things, 3D printing, autonomous vehicles, biotechnology, nanotechnology, robotics, wearable/implantable technology, big data, blockchain, the sharing economy, designer beings…
- 54. patents@ashfords.co.uk INTELLECTUAL PROPERTY in the 4th INDUSTRIAL REVOLUTION – KAYA ELKINER What does it mean for businesses? “…the great beneficiaries of the fourth industrial revolution are the providers of intellectual or physical capital – the innovators, the investors, and the shareholders…” – Klaus Schwab • Be the next disruptor in your industry, or be disrupted? o Airbnb, Uber, Alibaba • Develop and use technology to improve your business • Protect the technology IP, protect the competitive edge
- 55. patents@ashfords.co.uk INTELLECTUAL PROPERTY in the 4th INDUSTRIAL REVOLUTION – KAYA ELKINER Intellectual Property – types • Know How, Trade Secrets, Confidential Information • Trade Marks (and Domain Names) • Designs (registered and unregistered) • Copyright • Database Rights • Patents
- 56. patents@ashfords.co.uk INTELLECTUAL PROPERTY in the 4th INDUSTRIAL REVOLUTION – KAYA ELKINER Patents and innovation • Developing technology or using technology in a new way • Keep it confidential until a patent application is filed - NDAs • Patent Pending • Publication (vs keeping it a secret) o General vs specific • Timeline / territories • Patent box tax relief
- 57. patents@ashfords.co.uk INTELLECTUAL PROPERTY in the 4th INDUSTRIAL REVOLUTION – KAYA ELKINER Patents and innovation – what can you patent? Even minor improvement are patentable • Devices / Apparatus • Methods o Manufacturing methods and processes o Products made via a process • Software – depends on approach and jurisdiction o User interfaces o Improve speed of execution o Reduce storage space / bandwidth / processing usage o Improvement in security
- 58. Intellectual Property Kaya Elkiner Head of Patents, Ashford LLP patents@ashfords.co.uk Innovation & Technology Any Questions? Thank you
- 59. Business Case Study Craig MacAlpine
- 61. (c) copyright PKF Francis Clark, 2016 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by PKF Francis Clark in any format whatsoever unless you have obtained prior written consent from PKF Francis Clark to do so and entered into a licence. To the maximum extent permitted by applicable law PKF Francis Clark excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by PKF Francis Clark. These materials and /or any services provided by PKF Francis Clark are designed solely for the benefit of delegates of PKF Francis Clark. The content of these materials and / or any services provided by PKF Francis Clark does not constitute advice and whilst PKF Francis Clark endeavours to ensure that the materials and / or any services provided by PKF Francis Clark are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by PKF Francis Clark; nor do we commit to ensuring that these materials and / or any services provided by PKF Francis Clark are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by PKF Francis Clark are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law PKF Francis Clark will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by PKF Francis Clark, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited. PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at www.pkf-francisclark.co.uk. The term ‘Partner’ is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Disclaimer & copyright pkf-francisclark.co.uk
Editor's Notes
- In the latest set of figures to have been published by HMRC, the provisional figures for 2014-15 showed a year on year increase of around 38% over all of the available schemes. Increased scrutiny towards technical descriptions of R&D projects. HMRC increasingly want to speak to ‘competent professionals’
- Manufacturing Trials: Where trials are undertaken to test if the advance has been successful, the consumables will be qualifying if the goods or services are not sold as the usual products of the manufacturer. First of class: High value ‘prototypes’ where cost mean it is often impractical to produce prototypes, with the end intention of transfer to a customer. If projects which would normally qualify for R&D are undertaken during the design and build of the product, the cost of the consumables may qualify, excluding any items which are then transferred or included in the end product which is transferred to the customer. Prototype: A qualifying prototype is one created solely for use in the R&D project and is directly contributing to seeking an advance in science or technology. Intended as a single purpose, not for sale item. However once the project is complete, the status will not be affected if the prototype is then used for demonstration or is lent/given to potential customers for evaluation, providing this is in exchange for information from trials they subsequently conduct. Record keeping is key to being able to highlight specific spend on consumables. Keeping accurate records of any consumable expenditure, will also give better opportunity for defence should HMRC decide to enquire into a project. HMRC will argue that although there is no specific requirement for R&D records to be kept, HMRC states that there must be some form of record for the company to meet it’s statutory record keeping requirements. The manuals and legislation give flexibility over records which need to be kept, however in some cases, there is the potential for inconsistencies in expectations.
- National team, specialisms in varying locations Croydon- R&D compliance checks Leicester- R&D enabling Portsmouth- R&D processing Manchester- Advance assurance-patent box-creative relief-Tonnage tax Each location has the above primary function, however will revert to processing any other claims if not busy with primary function R&D support teams are being put through 3-6 months training, and there has been training by HMRC in-house software developers to help with reviewing software claims. These in house developers can also be called on
- Due to the way in which RDEC is applied above the line, as the rate of corporation tax reduces, the RDEC for large companies will become worth effectively more. As the RDEC gives a tax credit of 11% qualifying expenditure, this equates to a bottom line saving 8.8% @ 20% CT rate, rising to over 9% if the rate of CT reduces as expected by 2020. As a loss making SME, going forwards, the difference in real terms of surrendering the losses for a 14.5% tax credit, will reduce with the headline rate of CT. Although this is subjective, and relies on individual assessments of expected future profits, when they will come, and whether the cash will be worth more to the business’ growth now. Being a profitable SME, any R&D losses available to carry forward will have their value reduced as the rate of Corporation tax decreases. Will Brexit effect the rate of CT further, and will being outside of the EU allow the government to be more generous with the freedom it will have. Meetings of the RDCC have highlighted that HMRC expect more technical narrative to be included and less about the marketing or business side of a product.