UK Startups Can Pay In “Sweat Equity” and earn £90K In R&D Tax Relief

● Consilience Ventures (CV) uses its own tokenised currency to allow startups to buy the help of a curated set of experts

● It says its own surprise tax credit windfall and knowledge that purchases with digital coins still qualify for relief will have dramatic consequences for its clients

● CV is a sweat equity alternative that gives startups access to wide range of specialists who, in exchange for their time, receive a share of CV’s entire startup portfolio via its CVDS digital token

Manchester, 2021 — An elite skills bank that gives startups access to some of the most talented and experienced entrepreneurs on Earth has received a £90k R&D tax credit even though it paid for its innovations with a digital currency, Catax can reveal today.

Consilience Ventures (CV), a more flexible alternative to traditional sweat equity and startup funding, allows company founders to buy the time of experts they wouldn’t otherwise be able to attract.

The startups pay for their time with Consilience’s own digital portfolio-backed token, which in turn gives these angel experts a slice CVs entire startup portfolio — 100% of the proceeds will be distributed to portfolio-backed token holders proportionally to their holding.

CV was not previously aware that tokenised purchases qualified under the Government’s R&D tax credit scheme, which was created to encourage innovation. In fact, tokenised spending does qualify for tax relief, where it is for a corporation tax deductible expense, which mirrors the way portfolio-backed token gains are also subject to tax.

This revelation has now transformed Consilience Ventures’ ability to help startups in its network because it can help them to recoup a significant portion of the costs of their R&D.

This not only means they will be financially stronger and able to invest even more heavily in R&D using the curated CV network, but it removes a key potential disincentive for firms considering swapping a share of equity for spending power in a tokenised network like this.

Consilience Ventures, co-founded by former Microsoft Ventures Head Of European Ecocystem Development Kevin Monserrat, was a tech startup in its own right and has had to invest heavily in its own technology. The firm has spent the past two years perfecting its CVDS digital portfolio-backed token, its internal market, and its app, which allows startups to shop for the appropriate expert at the click of a button. Much of that was paid for using its own token.

The portfolio-backed token called CVDS is not like a cryptocurrency as it cannot be traded externally or on an exchange, but it is grounded in the same blockchain technology. The UK company building Consilience Ventures, called Consilience Group Ltd, is the first company to be FCA authorised to issue security tokens fully backed by an asset; the portfolio of tech startups selected by CV members.

CV currently has over £3m under management and expects that to grow to between £5m and £10m over the next few years. It was founded after Kevin realised many startup founders were frustrated at having to spend most of their time raising funds when what their companies really needed was the help of specific experts. In this way, CV cuts out many unnecessary funding rounds and replaces them with one seamless transaction, where risk is shared and founders have access to key expertise with plenty of choice and flexibility.

The key advantage to the experts available through the network — who already number more than 250 — is that they will be able to get investment exposure to more than 50 startups in a couple of years, which would normally take venture capital firms many years to achieve.

R&D tax credits were introduced by the government in 2000 to incentivise innovation, and result in either a reduction in a company’s corporation tax bill or a cash lump sum. Qualifying costs include staff costs (including third parties), materials, software and other consumables where they relate directly to R&D activity.

Many firms don’t realise the work they do qualifies as R&D, which is defined as any work that seeks to resolve a scientific or technological uncertainty, whether that’s a new process, product or service, or an improvement to an existing one. Crucially, R&D work does not need to have been successful to qualify and claims can be made up to two years beyond the end of the tax year in which the work took place.

Kevin Monserrat, Co-Founder of Consilience Ventures, said:

“Catax has helped us to understand the R&D tax credit scheme like never before and it is going to prove game changing for the startups in our network.

“We had no idea that tokenised purchases would qualify in exactly the same way as transactions using traditional currencies. This money was valuable to us but not nearly as valuable as the knowledge that claims for tokenised spending qualify too, because of the impact that will have on our entire portfolio in the future. It means there’s no longer any downside to using a digital portfolio-backed token for payment.

“This tax credit claim has transformed our ability to help our startups become more profitable and removed the only barrier to innovative companies joining a tokenised network like ours.”

Rob Wood, Principal at accountants Shipleys, specialises in the cryptocurrency and blockchain sector, and says this is a cutting-edge area of financial services.

He comments: “This is a wonderfully exciting area of the tax landscape at the moment.

“Companies using digital tokens and cryptocurrency as a store of value are just as entitled to claim R&D tax credits as those companies paying for R&D activity in pounds, shillings and pence.

“There is no difference between them as far as HMRC is concerned, because companies are ultimately using real, exchangeable wealth to fund projects. The value of that activity is then being returned to the wider economy, exactly as it is with conventional spending.

“The number of companies using digital tokens is rising all the time but there will be some instances where tokenised spending doesn’t qualify, so it’s important to get the right advice.”

Shaun Marsden, Director of specialist R&D tax consultancy Catax, said:

“The excitement in Kevin’s voice when we told him digital tokens still qualify under the R&D tax relief scheme was palpable. It’s no exaggeration to say that this knowledge has transformed the prospects of his company and all those it is going to help in the future, because they will all invest in innovation using Consilience Venture’s digital portfolio-backed token.

“This is really cutting edge in the venture capital space. It is important that companies embracing the latest technology and payments solutions aren’t put at a disadvantage, and have equal access to government support that was designed to encourage exactly this kind of activity. It’s therefore fantastic that the existing legislation accommodates futuristic companies like this that are making the most of the blockchain revolution.”

This is a huge step forward and will accelerate the digital transformation of the venture capital industry.