By William Garvey, MD, Leyton UK

It’s no secret that the legal sector is currently experiencing unprecedented technological shift. The drive for innovation is coming not only from the customer but from the government and the sector’s professional bodies. Indeed, the Law Society has partnered with Barclays Eagle Lab, to support hubs for LawTech businesses, in an effort to drive and support innovation in this dynamic field.

UK Law firms now sit at the very forefront of global innovation within legal technology and with new entrants, large corporate players and consumer firms of every size are driving service delivery change in this sector at a pace that seems to quicken daily.

Additionally, progressive regulations and a large tech-talent pool has created the ideal environment for innovation to thrive, meaning that many businesses in the UK legal sector are already developing or have developed new products to enhance their business offering.

But what is the UK government doing to support this?  The Law Society recently observed that “Magic Circle or Top 200 firms can to an extent fund innovation internally, but other firms were notably at a disadvantage when trying to finance innovation activity or invest in technology”.

In terms of funding these activities, there is now more opportunity than ever to reward this innovation and return financial benefit for the investment by legal businesses to enable them to continue to drive change at the cutting-edge of the sector. Funding is available for start-up’s and SME’s right through to the magic circle firms.

Considerable financial incentives in the form of tax credits can be realised for law firms investing in innovation, commonly referred to by the tax man as ‘research and development’ (R&D) activities.  However, even though many legal innovators are eligible for R&D tax relief, acquisition of this funding remains sporadic across top tier law firms due to several complexities around group structure and disparities of opinion around the types of activities that are deemed applicable by HMRC.

Building the right structure

One major hurdle is that law firms are often structured as LLPs which rules out tax relief for the main body of the business. The shift towards running the innovation departments of the business as separate divisions, and offering internal expertise externally through different structures such as Clifford Chance Applied Solutions, as well has having IT personnel working for LTD entities of the business opens opportunities to access this funding.  Tax relief for innovation is becoming a pivotal part of some law firms’ innovation strategies.

Being recognised as legal innovators  

The legal sector is primed to look towards the next steps in its evolution and there is little doubt that innovation is now needed in order to remain progressive. With a greater oversight of the activities which qualify for government relief, 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.

While it is possible to handle the process in-house, the support of a specialist innovation funding partner who can identify eligible projects and solve challenges can make the process quick and painless. This allows innovation to thrive, without disruption to the day-to-day business.

References:

https://www.cliffordchance.com/news/news/2018/07/clifford-chance-launches-two-new-innovation-units–the-next-stag.html

Leyton is the UK’s market leading innovation funding consultancy and is working with law firms to support their evolution and growth contact@leyton.com