EmpowerRD, the R&D claims company, was founded on the belief that too much government funding was being taken by inefficient advisors. TFT sat down with founder Hari Sandhu, who shared his thoughts on the challenges of disrupting a traditional, low-tech industry.
TFT: How did your experience working for PwC prepare you for starting EmpowerRD?
Hari: My background has been in tech strategy, where I worked over in the U.S for about five years. I moved back to a similar role within PwC and then moved over to lead on a part of the business looking at government incentives.
While working on that I was invited to sit on HMRC’s R&D consultative committee, which gave me substantial oversight of the market. That was probably the single biggest factor that affected my founding of EmpowerRD.
I could see how the schemes were working, where they could be tweaked to better help UK businesses. Whilst sat on that committee, it was apparent that the very upper end of the market was working quite efficiently. Corporates could negotiate a fair fee, based on the value that the advisors were providing to support the claim.
However, in the midmarket and SME space, all of those companies were being given a raw deal. They were being presented with high fees. Whereas with a larger blue-chip client, you might be paying a fraction of a percent of the credit that you get back for your claim. With the smaller businesses, they were giving up 25/30%. There have been cases of companies giving up 50% of the money that they’re getting back from HMRC. Companies being tied in for three, five or even eight years.
We realised the industry was running a muck because there wasn’t enough transparency about what was needed to make a claim, and HMRC were providing what oversight they could, but had limited resources.
There’s also this overriding factor that this is a taxpayer-funded scheme. So we as taxpayers are actually paying for unscrupulous advisors to siphon off public money. So that experience really drove me to create EmpowerRD; it created a moral driver to try to correct the market failure and that still motivates me today.
“We realised the industry was running a muck because there wasn’t enough transparency about what was needed to make a claim.”
TFT: Tell us about how you started EmpowerRD?
Hari: While I knew that creating a transparent and well-managed advisory service would do well in the market I also realised that technology could be utilised to make the claim process easier and more reliable, while retaining the expertise of an advisor.
Our hypothesis has always been that you could build a technology platform that could work alongside the expertise of an R&D advisor. The use of tech enables us to significantly reduce both the fees for our clients and the time it takes to create a high quality R&D claim.
So our approach is a hybrid approach that gives you the best of the advisory way of working alongside a tech firm. It has all the efficiencies, the workflows, the integrations that weren’t there before, to enable the client to reduce how much time is spent in the actual prep itself.
We’re starting to see downward pressure on fees now, which is fantastic. We’re seeing some of our competitors cleaning up their act a little bit, which is a good thing too.
Our mission has always been to clean up a stale industry and refocus on adding value to the taxpayer, the government and ultimately, UK businesses. I’m proud of the fact that we’re continuing to lead in that effort.
“The use of tech enables us to significantly reduce both the fees for our clients and the time it takes to create a high quality R&D claim.”
TFT: Are fintechs missing out on opportunities to take advantage of government funding?
Hari: Fintechs are like any other business, in that there’s an awareness issue around R&D tax credits. The government predicts that 70% of businesses that could claim aren’t. There’s still a number of companies out there who just think they won’t qualify for X, Y or Z reason.
That said, even those companies that are taking advantage of R&D tax credits often seriously under claim. We find that this applies to a lot of businesses that maybe weren’t using specialist advisors for their previous claims. In the past, some businesses who have started using us for their claims have asked us to look at their past claims. On one occasion we were able to increase their past claim by 300%! So even if fintechs are claiming they may well be under claiming.
More specifically for fintechs we get a lot of questions about whether or not the funds they’ve raised through things like ICOs can be accounted for and how they might be accounted for within the claim. And can they be claimable at all? So that’s another area where there is some lack of clarity. Which again, puts companies off from making a claim at all. But these are all areas that we’ve tackled and we continue to provide robust guidance to companies. We’ve got a 100% success record with HMRC, not just within the fintech space, but across every single application that we’ve made.
TFT: How can your service help SMEs and start-ups?
Hari: Well we’re aware that the greatest need for change was at the lower end of the market, and so primarily our pricing is the key benefit for SMEs. Replacing fees of 25-30% to 5% makes a serious difference to an SMEs working capital, and we’re proud of that. Also our use of technology actually makes it easier for SMEs to make a claim versus the traditional route, so we save them a lot of time too. We’ve always thought about how we can improve both the experience, as well as reduce the fees.
“We’ve got a 100% success record with HMRC, not just within the fintech space, but across every single application that we’ve made.”
While we work across a lot of industries like manufacturing, pharmaceuticals, agriculture as well as tech, we’ve grown up in the London tech scene because of our innovative use of technology. For example, we were able to start working with Forward Partners – our investors – who have been a great help to us. What that means is that a lot of our clients, particularly our early clients, have been tech startups. So we have a lot of really great sector expertise in tech to help maximise claim values for startups.
TFT: Which clients have seen the greatest benefits?
Hari: Definitely the example I mentioned before comes to mind. We looked at Bloom & Wild’s past claim, and increased it by 290%, which we were both surprised and happy about. We think they were too!
With our larger clients, we’ve been able to significantly reduce the amount of time that they spend getting the claim the R&D claim submitted. That makes the biggest difference for our larger clients.
Traditional claims can often take four to six weeks. That’s because of all the coordination between the finance and tech teams, as well as scheduling face-to-face meetings with the advisor.
With our process and the systems that we have in place, we’re able to bring that burden down significantly; in fact, on more than one occasion companies have been able to get through the end to end process in under a day.
Not only is there a cost-benefit, but there are also significant operational benefits, where we can free up the company to continue to focus on the R&D that they’re undertaking, rather than just financing the R&D.
It’s a win-win, both from an operational perspective, as well as the fact that the claims are being optimised and you’re getting the maximum back.
“The vision that we’re bringing to life is one where companies on a Monday morning can kick off an engagement to file their R&D tax credit, by the afternoon have it submitted and have the cash in the bank, all in a day’s work.”
TFT: What areas are you investing in right now?
Hari: There are a number of areas that we are interested in. We’ve got quite a long backlog of both tech and service development that we’re looking forward to bringing to market.
One of those is a major new service offering called EmpowerRD Now. This will make us the first (and only!) provider across the UK that’ll be able to provide companies with the R&D tax credit and the funds for the R&D tax credit, the same day they file. So you don’t have to wait three months for HMRC.
A key reason for smaller businesses to take advantage of the R&D tax credits is to supplement cash flow, to enable them to invest. We’re providing them with the mechanism to take advantage of that without the arduous wait for HMRC payouts.
The vision that we’re bringing to life is one where companies on a Monday morning can kick off an engagement to file their R&D tax credit, by the afternoon have it submitted and have the cash in the bank, all in a day’s work. That alleviates a key problem with the scheme that our clients have been feeling and we’re excited to solve that.
We’re seeing phenomenal growth, in terms of the volume of clients that we’re onboarding. Almost two-thirds of our clients have switched across from other advisors. Given our trajectory of growth, one of the key challenges is being able to recruit as quickly as possible. We’re constantly on the lookout for great new talent, whether it’s in tech, tax, operations or sales. So any great candidates out there that are interested in fixing a market failure and providing greater value for UK businesses, we’d love to hear from you!