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Hello, and welcome to a podcast series brought to you by the FI Group. FI Group are leaders in the field of R&D tax and for over 20 years have been helping companies fund their innovation. I’m Amber Farrington, a consultant with FI Group, and in today’s episode we are joined by two guests, Alastair Hall, Sales Director at FI Group UK and Bruce Kletsky, Managing Director of FI Group USA. As leaders in the field of R&D tax, here at FI Group we have seen many companies grow and expand over the years. In this episode we will be looking at global expansion in depth, focusing on some useful tips for success when going global. We will also compare the similarities between the USA and UK R&D incentives. And to finish, Bruce and Ali will tell us some of their client success stories! Hi Bruce, thank you for joining us today. Can you tell our listeners a bit about yourself and FI Group USA? • Bruce: I am the Managing Director for the FI Group US. With offices in Chicago and New York. I lead a team of technical experts consisting of tax, engineering, IT, law, and business operations. My speciality is helping corporations obtain the R&D tax incentive. The purpose of the R&D incentive is simply to reduce corporate income or payroll taxes. I have focussed on this discipline for over 25 years and have successfully represented in excess of 600 corporations. FI Group is a strategic partner that understands business operations and develops a methodology on how business activities apply to the R&D tax incentive. Amber: Ali, could give us some information about yourself and FI Group UK? • Ali: Quick introduction to myself I am the UK Sales Director and over the last 7 years I have helped UK companies navigate the different forms of UK R&D funding whether be R&D tax relief or Innovate UK or even Patent Box, I enjoy helping companies get their technology to market. In the UK we focus on R&D funding but our aim is to help companies innovate how they use R&D funding and use it in a novel way which can not only drive cash into their but also drive in better more efficient business intelligence Amber: Could you both tell us more about your teams in the USA and UK, their experience in R&D and what advantages this offers? Bruce: Advantage – Transparency and Education! Our team not only understands the R&D tax regulations, but also understands how business operate, and how to apply traditional and non-traditional business projects and activities to the R&D incentive! This approach maximizes the credit. In the US, we have developed a customized software program that creates a structured platform that helps educate our clients and manages the documentation process. This process exceeds the IRS guidelines. Not only do we provide a written deliverable, but we also record the conversations of our client’s technical activities so that it meets and exceed the R&D tax guidelines. Ali: We have a mixed team in the UK some with several years experience and others who are newer to the world of R&D, I am very excited about the team split because it allows us to focus on the core fundamentals that allows FI to be successful but to also to think about our markets and approach in a new way, everyday is a school day! Amber: Sounds like you both have a great teams! What advantages does having so much global R&D tax incentive experience offer both of your respected teams? Ali: For me our experience of global R&D tax offerings allows my team in particular to give clients the extra tools they need to successfully achieve their goals. The more equipped my team is the quicker our clients grow. Bruce Most of our clients in the US have a global presence. I get numerous complements because of our education, global consistency, efficiencies of our process, digital tools, transparent methodology, and an understanding of our client’s global footprint. Bottom line – this approach maximizes the R&D benefit and creates a “Best Practice”. Plus, by understanding our client’s business initiatives, we can help identify other incentives or grants, both state and federal. Earlier I mentioned companies and global expansion. Why should R&D funding be a key discussion when expanding globally? • Ali: I recently wrote an article for our website on this subject and for me R&D funding is key to global expansion because of the obvious cash benefits but a detailed knowledge of funding that is available as you expand can be the difference between breaking into those new markets or not. We know expansions cost money but more importantly expansions are successful because of people, they help us innovate, understand cultures and deliver on vision. R&D funding allows companies to find the right talent and accelerate the hiring of that talent. • Bruce: Recently, Congress initiated the Path Act. One of the main components is that Startup companies can now benefit from the R&D tax incentive. Why – because R&D activities and expenses will be applied to corporate Payroll taxes. What are Payroll taxes - payroll taxes generally fall into two categories: deductions from an employee's wages, and taxes paid by the employer based on the employee's wages. The R&D tax incentive minimizes both. This is a huge benefit for any company in the US that is 5 years old or less, and has US employees and wages. It doesn’t matter where the IP is, or where the corporate headquarters are located. Bottom line – the purpose of the R&D credit for a Startup is payroll tax reduction or minimization. Amber: Now, looking at global expansion and the challenges faced when growing a global tech startup, Ali what do you see being some of the main areas that might be particularly difficult to navigate when expanding globally? • Ali: When expanding you have some significant hurdles to overcome ranging from different legal systems to time zones but having spoken to clients who have made the transition the biggest difficulties, they have faced have been cultural. You may have a fantastic value proposition in your existing market but how you articulate it may change country to country. Cultural differences may make your route to market more challenging cold calling in America is very different to cold calling in the UK. • Bruce: The biggest challenge is finding people. Then identifying their target market and demonstrating the value of their service. Amber: What tips for success would you have for companies looking to go global? • Ali: Invest in the right people and be prepared to go back to startup mode and invest in innovation. European companies who setup in the US after their series e funding on average employ 33% of their R&D team in the US. Having a tech team in the same time zone who can meet client needs is a common theme behind most unicorns. • Bruce: A I have found that there is quite a bit of equity money available, especially when the company has a global presence. The Startup company must identify the quality of the job market and where is their customer base Amber: Wow thanks, you’ve both highlighted some great key areas that companies should definitely look at when expanding. Moving on from global expansion, can you both tell me about the R&D tax incentive systems in each of your countries, the history of these incentives with any recent changes and qualifying industries and activities? • Ali: A R&D tax in UK has been around for 20 years and effectively has three arms to it. The SME scheme for sub 500 employee companies and their relief is between 25-33% dependant on tax position, RDEC for companies over 500 staff and their relief is 13% and then RDA which allows for tax benefits on capital expenditure related to R&D. In terms of the phrase R&D, HMRC have a definition which does not make great bed time reading but in essence R&D in the UK is time spent by companies pushing their knowledge forward around the use and or creation of technology which is not readily available. In the UK we have R&D from pig farming through to pharma. • Bruce: The R&D tax incentive has been around for 40 years. But the definition and qualifications of R&D has been simplified and expanded - engineering, process improvement, and executive supervision qualifies as an R&D activity. Also, activities that are frequently missed: technical sales, functional and economic production, failure, customization, materials, reliability, performance, engineering, testing. New documentation requirements – Originally, contemporaneous documentation and time tracking were required – but these requirements are no longer required. Amber: A question for you both, what challenges do you see for startups in the UK vs the US? • Bruce: One of the first questions that we want to identify is if our clients research is “funded vs. non-funded”. Basically, who assumes the risk in the project. We want an understanding on how our clients get compensated, and who owns the research. This could determine if their business activities and expenses qualify. Next question that we need to identify is can a Startup utilize the credit – a Startup also has the ability to go back to prior tax years, without amending their tax returns. Utilizing the credit is at time a challenge, but the Startup company is allowed to carry forward the credit up to 20 years • Ali: Speed to market is a key challenge for UK startups, we have a rich culture of innovation in the UK and at any point of time you can normally guarantee that someone else is also developing a similar platform, product or services. so speed to market is crucial, as a startup you have limited resources and so if you launch at the same time as an established player their sales team will out run you to market. Being novel is always an advatnage.