Funding Blocksell.com: Making the most of R&D

10 October 2016

Blockchain technology is developing at lightning speed – so fast that many believe that within five years it will have transformed business, financial services and many other areas of our lives. But this stage of blockchain’s evolution is an expensive, competitive one. Many companies and entrepreneurs are pushing the boundaries of the technology, racing each other and themselves to be the first to market with a reliable and tested solution. To do that they need the right expertise, which is scarce and therefore expensive. They also need the space and resources to innovate and develop their idea. That’s why R&D funding will be so essential to the future of blockchain.

It’s true to say that entrepreneurs aren’t often experts in navigating the world of tax credits, grants and funding bodies that’s so important to their existence – but that’s why people like me are here. John Steveni and Paul Smith introduced the idea  of a fictional (but not so very futuristic) blockchain-enabled online marketplace, which we’ve named Blocksell.com, in their earlier blog. So let’s use the people behind Blocksell.com as our guinea-pigs. As they develop the technology that will become one of the most successful blockchain-run organisations in the world, where do they turn to for funding?

Assuming that Blocksell.com is a UK company, one of the most significant funding points will be R&D tax credits. The qualifying criteria is clear; to quote the UK Government, companies can only claim for R&D tax relief ‘if an 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 its own state of knowledge or capability.’ But in the case of Blocksell.com, that’s well within the boundaries, which opens it up to cashback from HMRC on its R&D expenditure. The amount Blocksell.com can ultimately claim back in this way depends on its size; R&D tax credits are set up to favour SMEs, which can claim up to 33% back on their R&D spend (provided they haven’t already received an R&D grant for the project), while large companies are restricted to 11%.  Blocksell.com is not yet generating profits but this does not matter as the cashback credit is available whether or not the company has a tax liability in the period.

The one issue to contend with is that HMRC are increasing their focus on software and IT development claims and it is not always easy to evidence technology-based R&D work. Many companies are carrying out similar research at the same time and showing that you have intellectual ownership of any particular innovation may be difficult. But, as long as Blocksell.com can clearly evidence to HMRC that they are pushing the boundaries of the technology and there is not already information in the public domain on how to achieve this, then that’s an excellent start.

Further tax relief could be available to Blocksell through the Patent Box. Blocksell.com is at the forefront of blockchain innovation and would naturally want to protect its intellectual property (IP) by filing patents. This means Blocksell.com would qualify for Patent Box, which would mean an effective tax rate of 10% on any profits arising from the protected IP, rather than the 20% corporation tax rate that would otherwise apply.

And then there are grants for R&D, which are available through national governments (for example, though the Government’s innovation agency Innovate UK), and elsewhere, such as through the EU’s programme for research and innovation, Horizon 2020.

As a start-up, Blocksell.com might want to explore www.niftyforms.co.uk, a website we’ve developed to help small companies make their R&D claims and evidence the R&D.  The help Blocksell.com and other blockchain entrepreneurs need is out there – you just need to know where to find it.

 

Rachel Moore

e: rachel.moore@pwc.com

p: +44 (0)1223 55 2276

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