It’s hard enough for tech entrepreneurs to turn their ‘big idea’ into a commercial success without also having to get to grips with the various tax, legal and insurance responsibilities that come with growing a business.
However, far from being a burden, these business requirements can help you fund your work, protect you and your employees, and maximise your earnings. We asked a panel of Markel experts to pass on some tax, legal and insurance tips for the four stages of a company’s lifecycle: start-up, expansion, growth and exit.
Start-up tips
Justine Dignam, Director of Tax Incentives and Reliefs
“Funding to develop innovative ideas is vital and one useful source is research and development (R&D) tax relief, which offers a cash payment or corporation tax cut of up to 33%. To qualify, the innovation doesn’t have to be groundbreaking – just an advance in your own environment that isn’t already present in the marketplace. That could be making your manufacturing process faster, cheaper or more environmentally friendly. But bear in mind you have to have been trading for 12 months to qualify and you must be a limited company.”
Mark Rankin, Head of Commercial Services
“Legal issues include the documentation to form a company in the first place and employment law as the start-up takes on its first staff. As a start-up you will have your idea or product, but while you’re developing it, you’ll need intellectual property (IP) protection and confidentiality agreements. As a tech business, you’ll have a lot of data so will need to ensure, from the start, that you have the right processes in place to comply with GDPR.”
Mark Lowther, Head of Financial Lines Sector Sales
“Rented premises and employees means start-ups might need public liability insurance, employer liability insurance and premises and contents cover.”
Expansion tips
Mark Lowther
“Insurance policies can be amended to add cover as the company need changes. One change could be to add R&D expenditure and R&D payments cover, which will cover costs or lost income if your business’s R&D programme is interrupted or delayed.”
Mark Rankin
“At this stage, a business is probably just delighted to be trading and perhaps hasn’t paid much attention to contract terms. Disputes do happen, so it’s important to review terms to make sure your company has protection without pushing so hard it loses business. Look into whether there is limitation of liability and check if you have exclusion on loss of profits or consequential losses. As you move into overseas markets, it’s also important to make sure you’re compliant with the laws of different jurisdictions.”
Justine Dignam
“An expanding tech business will still be finessing its product and scaling its processes, which offers further opportunities to claim R&D tax relief. Considering it’s not means tested and you can spend R&D relief on whatever you see fit, it’s a massively underused relief with less than 60,000 of the UK’s 3.5 million businesses claiming it. It’s also worth looking at capital allowances for the cost of new premises and refurbishment, while investments in plant and machinery could qualify for the 130% capital allowance super deduction.”
Growth tips
Mark Lowther
“Once a business matures it need to protect its directors and senior managers against compensation claims through directors’ and officers’ liability insurance. Invest in public and product liability or general liability to cover the failure or interruption of your product or service and ensure efficacy cover is included in this. Data is, of course, business-critical for tech companies and yet take-up of cyber insurance to cover against events like a breach is not as high as it should be.”
Justine Dignam
“Consider getting a patent on some integral part of your product – it could cut corporation tax liability on all profits relating to that product to 10%. Companies might also be surprised to learn that making bespoke alterations to something like a CRM system to integrate with their stock control system could qualify for R&D relief. They can also claim R&D capital allowances on assets used for R&D and facilities where R&D is carried out, such as a laboratory.”
Mark Rankin
“A company growing by acquisition definitely needs the input of a lawyer on the terms and conditions (T&Cs) of the sale. You might also need legal help with the T&Cs of moving to bigger premises.”
Exit tips
Justine Dignam
“Business leaders can face a capital gains tax bill after selling their company, but it’s possible to reduce the amount by claiming Business Asset Disposal Relief or certain other reliefs.”
Mark Lowther
“The key thing to remember here is to ensure that all the liability you have in place to protect the business doesn’t expire in the run-up to the acquisition.”
Mark Rankin
“Exiting can be a complex process, with terms depending on the type of sale. Legal input should be sought on fundamental issues like whether an entrepreneur will be paid in full at the time of disposal or receive deferred payment over a period of time.”
