A brief history of how the R&D market has changed

28th Jul 2020
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fighting for market traction

As the R&D tax credit scheme has grown, the dynamics between SMEs, accountants and the R&D specialists has changed, resulting in vibrant competition and falling prices. Here’s how the main market participants have been affected.

SMEs

different sectors applying for R&D tax relief

In the early days of the programme, there wasn’t a lot of noise about it. It was seen as a quiet backwater that not many companies ventured into. The few claims that were made were from companies in unarguably technical sectors, such as biotech and pharmaceutical development.

Fast-forward to today, and things are very different. Sales activity from large consultancy firms has driven a much greater variety of companies to apply, from architecture practices, to small scale bakeries, to panel beaters, to product design companies.

With so much noise in the market, SMEs realise they have options in choosing a provider and have used this to drive prices down. Increasingly viewing R&D as a commoditised service, they increasingly buy on price and may be cynical about ubiquitous claims of uniqueness or 100% success records.

R&D Consultants

growth in consultants offering R&D tax relief support

The first entrants to the R&D consultancy market tended to be small outposts of international companies.

Hot on the heels of those came the larger, UK-based companies who had already achieved traction in adjacent markets, such as capital allowances or grants and innovation funding. They quickly cross-sold a new R&D service into large, existing client bases and achieved fast growth as a result of good branding and well-funded marketing departments.

Popping up between those corporate bricks were the consultancies that emerged organically within the UK, typically focused purely on R&D tax credit consultancy. Perhaps falling victim to their own success, their main challenge is no longer persuading SMEs that they should claim, but that they should claim with them. With so much competition, differentiation has become difficult, with price being the easiest lever to pull to win sales.

Accountants

accountants making profit from R&D consultancy

Accountants have been a vital part of the R&D claim process right from the start, as each and every claim is made via a company’s tax return. Despite this, accountants appeared to play more of a reactive role in the development of the R&D consultancy market, at least initially. Rather than scrutinising their portfolio and approaching even borderline cases, as the consultants did, many accountants took a conservative approach, only suggesting R&D tax relief if they knew that their client’s work was on particularly strong ground.

While the assertive consultants were good at finding new claimants and persuading them to claim, the accountants ultimately had the upper hand. By using their strong client relationships, they were often able to entice clients back from the consultants, and in some cases chose to adopt the same commercial model and working practices. Accountants now are engaged in many different ways, from simply referring R&D work to local specialists they trust, to proactively recruiting teams of technical employees with which to rival the structures of the larger R&D consultancies.

The market today

market today for R&D tax relief consultancy

All of this cut and thrust has created a vibrant market for R&D consultancy in which no-one can afford to stand still. The SMEs are always on the lookout for a cheaper deal, the consultants are eyeing up their next big contract, and the accountants are quietly reaping the rewards by encouraging wayward clients back to the fold by quietly undercutting (and emulating) the consultants.

Why you need an in-house R&D service

R&D tax relief was introduced for SMEs in 2000 and extended to large companies from 2002. The scheme is designed to encourage greater R&D spending, leading in turn to greater investment in innovation and is one of the main tenets of UK government business support.

In February 2020, the government pledged to increase public investment in R&D to £22bn a year by 2025, meaning there is a significant opportunity for accountants to scale up their operations to help more SMEs access these funds.

Focusing on running an R&D service in-house helps you take advantage of this growth, move away from risky outsourcing strategies, win new business and become a force to be reckoned with.

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Get to grips with the fundamentals of the R&D tax relief scheme

If you’re an accountancy firm looking to launch an in-house service, get to grips with the fundamentals of the R&D tax scheme or explore strategies to optimise your claims preparation processes this is the guide for you!

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