When the UK Government revised its rules to bolster investment in cutting-edge R&D, one key change was the inclusion of pure mathematics from the definition of R&D for tax relief purposes.
At the time, the government admitted that there was a growing number of R&D projects taking place in the UK that were underpinned by maths. Previous studies have shown that as much as £208 billion of gross value added (GVA) can be associated with mathematical research across the whole of the UK economy, from banking and finance to construction and healthcare.
The change to HMRC’s rules provides much-needed clarity to businesses, as beforehand, it was a bit of a grey area as to whether mathematical advances that underpinned scientific or technological steps forward should be considered maths or pure maths.
While pure mathematics tackles abstract concepts, it also covers logic, geometry and algebra, which have very real scientific and technological applications, from the algorithms powering AI to the data encryption that secures our online transactions. As such, pure mathematics is particularly relevant for R&D within the finance industry.
In this article, we look at some examples of sectors leading the way in using pure mathematics to drive innovation through R&D.
Examples of finance industries conducting pure mathematics R&D
Quants: Quants use complex computer algorithms to identify trading opportunities, picking stocks based on data. This takes the emotion of huge financial decisions to improve returns and reduce risks. Not only do quants have to optimise and improve their algorithms continually, but they also need to develop systems that can handle massive amounts of data and transactions as well as make decisions in an incredibly short space of time – often within a second.
Algorithmic traders: Like quants, algorithmic traders rely on sophisticated mathematical models to identify potential market opportunities for profitable investments. Much of their R&D is invested in developing faster and more efficient trading platforms.
Insurance companies: Insurance companies develop advanced mathematical techniques for assessing risk to build their pricing models. Other potential areas for R&D include fraud detection, where probability can be used to audit claims.
Actuarial and pension consulting firms: Actuaries use advanced probability algorithms to predict mortality or other life events like the probability of an employee becoming sick or disabled. They also develop new models to work out the potential returns on pension fund investments, again improving decision-making and reducing risk.
Liquidity providers: Liquidators conduct R&D to develop intricate mathematical models to evaluate a company’s ability to meet short-term debt obligations with existing assets.
How pure mathematics qualifies for R&D Tax Credits
The financial and banking sector has always relied on technological innovation however, with the rise of AI and the imminent arrival of quantum computing, there is a new urgency for investing in research and development to stay competitive.
While R&D is commonplace, there is still a great deal of uncertainty in the financial sector around what projects qualify for R&D Tax Credits.
Any work that’s seeking to overcome an uncertainty by making either a scientific or technological advance, that can’t easily be worked out by a competent professional, can likely be classed as R&D for claiming tax relief. For the purposes of claiming R&D Tax Credits, the government’s guidelines now treat mathematical advances as equivalent to scientific advances.
So, if your company is hiring PhD-level mathematicians to systematically test and develop your technology to overcome barriers and break new ground, then there’s a good chance that you’ll be conducting work that qualifies for tax relief.
Better still, if you do have a team devoted to mathematical activities, like designing algorithms or data modelling, then a portion of their total comp – including salary, overtime, bonuses, commission and pension payments – can be claimed for through R&D tax relief. As well as staff costs, any investment in software licences, data licences, cloud computing costs and certain other R&D-related expenses are also eligible, which can potentially add up to a substantial amount of tax relief.
How Leyton can help
As pure mathematics is a relatively new inclusion within the qualifying criteria for R&D Tax Credits, many businesses are unaware of the significant tax benefits that are available to them.
We’re experienced at helping clients in the finance sector access valuable R&D Tax Credits that they might otherwise be missing out on. Our team has a deep understanding of sophisticated trading and predictive technologies, powered by mathematical algorithms. As a result, we’re able to dive into the details and identify eligible areas for R&D tax relief, allowing us to put together comprehensive claims that are compliant with HMRC’s complex rules.
Is your company investing in pure mathematics to gain a competitive edge? Speak to one of our consultants to find out how we can support your R&D efforts.
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