It’s no secret that the legal sector is currently experiencing an unprecedented technological shift. Demand for innovation is driven not only by the customer but also from the government and the sector’s professional bodies.
In a signal of commitment to the cause, the Law Society has partnered with Barclays Eagle Lab which provides hubs for LawTech businesses, delivering tangible support and access to end user partners.
UK law firms now sit at the forefront of global innovation within legal technology, and along with new entrants, large corporate players and consumer firms of all sizes are driving service delivery change in the sector, at what feels like breakneck speed.
Progressive regulations and a large tech-talent pool has created the ideal environment for innovation to thrive, meaning that businesses across the UK legal sector and its supply chain are developing new products and ways of delivering value and service to customers. So what is the UK government doing to support this?
UK Government Support
The good news is there are lucrative incentives available. These are in the form of tax credits which can be realised for businesses investing in innovation in the sector, commonly referred to by the tax man as ‘research and development’ (R&D) activity. This will support this exciting drive for change and enable significant cash returns so that businesses can continue to innovate and advance their development.
Access to this funding is available for start-up’s through to the magic circle firms – to get access what’s needed is a specialist understanding of what activity would qualify as R&D and industry specialist R&D tax and project management capability which many eligible businesses and their accountants don’t routinely have.
This capability gap partly explains why even though many legal innovators are eligible for R&D tax relief, acquisition of the funding remains sporadic across the industry. This is particularly evident in the top tier law firms who are making huge investments in R&D. Additionally other obstacles such as company or group structures and disparities of opinion around the types of activities that are deemed applicable by HMRC are challenges to overcome.
An example of a particular challenge is that law firms are often structured as LLPs and that can rule out tax relief for the main body of the business. A shift in organisational and business structures towards differentiating the innovation departments of legal service business as separate divisions or related entities is opening up opportunities to access this funding (e.g. Clifford Chance Applied Solutions). Alternatively this can be achieved by having IT and related innovation personnel working for LTD entities of the business, whilst ensuring project management capability captures all related activity (beyond purely IT spend and direct ’innovation’ costs).
Tax relief for innovation is becoming a pivotal part of some law firms’ innovation funding strategies, but there is still much to do across the sector to ensure that all businesses that could access this support are set up to do so.
The legal sector is primed to take the next steps in its evolution and there is little doubt that continuous innovation will be needed to remain progressive.
With greater understanding of the qualifying activities for government innovation support, internal capability development and a reduction in the complexities of claim submission processes, law firms can generate significant return on their investment and continue to fund future innovation.
Leyton is the UK’s leading innovation funding consultancy. We’d love to chat to you about how we are helping law firms maximise their innovation funding opportunities. Get in touch with us.