Are you looking to extend your company’s cash runway? An R&D Tax Credits claim could help you secure the capital you need quickly.
Has there ever been a more difficult time to be an SME?
The Coronavirus is continuing to wreak havoc on the UK economy, damaging revenues for an astonishing 80% of small-to-medium businesses. If that wasn’t enough, another crisis could be on its way: a disastrous, no-deal Brexit.
The government has made a decent fist of supporting businesses through the pandemic, launching schemes like the Future Fund, Bounce Bank Loans and the CBILS, which have handed out billions in much-needed aid.
But as founders and financial executives look to lengthen their cash runways, they would be wise to look beyond Coronavirus support; to a generous, trusted and fast-moving form of government aid: R&D Tax Credits.
What are R&D Tax Credits?
R&D Tax Credits, also known as R&D Tax Relief, is a government incentive that lets companies claim back up to 33% of their research and development costs. The money is paid either as a cash lump sum or a reduction in their corporation tax bill.
In 2018, approximately 40,000 companies claimed R&D Tax Credits, which delivered £87,000 of relief per business on average. According to government data, every £1 of relief distributed generates up to £2.35 in additional investment.
The scheme lets companies claim for a range of R&D-related costs, including employee wages, pension contributions, subcontractor fees and software subscriptions.
Planning to claim R&D Tax Credits?
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Why claim R&D Tax Credits?
R&D Tax Credits were already a popular and generous form of government aid. But a range of factors has made them an even more attractive source of capital for businesses looking to extend their cash runway quickly.
Companies which aren’t already claiming R&D Tax Credits, or have delayed filing a claim this year, should consider these factors carefully.
Record-breaking processing times
HMRC has dramatically increased the resources dedicated to the R&D Tax Credits scheme, which has successfully driven down processing times.
According to the latest figures, the agency is processing 95% of claims in just 28 days or less.
These are the fastest processing times we’ve ever seen, making this the perfect time to claim R&D Tax Credits.
But speed isn’t everything.
You could almost call R&D Tax Relief a ‘no-strings-attached aid’. It’s non-dilutive, unlike the Future Fund’s convertible loan notes, and it’s not a form of debt, unlike a CBILS or Bounce Back loan.
R&D Tax Credits are also available to companies in all industries, not only cutting-edge fields like software and biotechnology. This makes tax credits significantly more accessible than grant funding competitions like Innovate UK.
Extra support for unprofitable companies
The Coronavirus may be forcing many companies into, or further into, unprofitability.
But there is a slight silver lining. The R&D Tax Credits scheme offers more support to unprofitable companies than profitable ones.
Using a facility called ‘surrendering’ a loss, unprofitable businesses can forfeit their ability to carry forward a loss in exchange for a cash credit, worth £145 for every £1000 surrendered.
Loss-surrendering, coupled with SME R&D Tax Relief’s enhancement mechanism, allows unprofitable companies to claim the maximum R&D Tax Credit: 33.35% of development costs.
Profitable companies can claim a maximum of 24.7%.
It’s not always beneficial to surrender your loss, however. If you’re expecting to be profitable next year, it’s better to hold onto your loss and use it to offset your corporation tax liability.
But if you are also expecting to make a loss next year, surrendering your losses is a prudent way to unlock cash quickly.
Attract investment with R&D Tax Credits
R&D Tax Credits offer more than a handy cash injection. They can actually help you raise money from investors.
Many VCs and Angels see R&D Tax Credits as a sign that your business is doing genuinely innovative work. Work that could become valuable IP, and go on to earn additional government subsidies like grants, patent box relief, and more tax credits.
Whatsmore, the financial windfall from R&D Tax Credits could help you secure private funding on better terms. This means you could raise more money, extending your cash runway even further, and give up less equity in your business.
Shortening your year end
A number of our clients have used the accounting practice of shortening their year-end to bring forward their tax credit windfall by several months.
While I wouldn’t recommend this outright, I have seen numerous companies benefit from shortening their year and getting cash quickly.
Shortening a year end is most suitable for companies that:
- Are making a loss
- Or are pushed into a loss by R&D Tax Credits’ enhancement mechanism
- Are certain of their eligibility for the scheme
- Have invested a sizable amount in R&D
There are no penalties for shortening your financial year. And you can do it as many times as you would like.
For more information on shortening your financial year, check out the government’s website.
Need cash now? Our Advance Funding service could advance you 80% of your R&D Tax Credit claim up to 3 months before you file.
Make the most of R&D Tax Credits
R&D Tax Credits could provide your business with a quick and sizable cash injection.
Filing for R&D Tax Credits can be a straightforward process. But the scheme often throws up variables and edge cases, which could make it tricky to maximise your windfall.
If you want to make sure you’re claiming for every penny possible, and making the most out of your company’s financial position, the best thing to do is speak to a specialist.
Speak to a specialist
GrantTree’s team of tax and technical experts is ready and waiting to support you.
Our team would be happy to help!
If you are curious about R&D Tax Credits, Innovation Grants and Open CultureGET IN TOUCH
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