R&D tax credits are a government entitlement which rewards your business for spending money on innovation and research. They’re a vital source of funding, particularly for small businesses that are looking to grow fast and create new, leading-edge technologies or solutions.
Lots of investors are fully aware of the benefits that come with a successful R&D tax credit claim and the strategic reinvestment of these tax credits, which if channelled into further innovation, can often result in increased profits for the business.
Cash is king, and an injection of cash into your business can be invested in a variety of different areas; such as staff, plant and machinery, software and further R&D that is essential for growth. These cash payments also mean that businesses can prolong the time between funding rounds, which we discuss in more detail below.
If your company is trying to raise capital through funding, for example, through a Kickstarter campaign, this could take weeks or even months to materialise.
R&D tax credits, on the other hand, are processed quickly, and you could have your cash in the bank in as little as 4 weeks. Investors like seeing cash on the balance sheet, which will make you a much more lucrative investment opportunity.
Many businesses have a gap of at least 12 months between funding rounds, the extra cash your business receives from R&D tax credits could decide when you look to secure funding.
No one wants to see a business crash and burn, especially a small business or start-up. R&D tax credits can help your business to fund necessities between your major funding cycles or even enable you to postpone your next round of funding. The time saved on pitching to investors can be used to grow your business. If you choose to do this, there will be a higher company valuation when offering shares to investors, which means you will be able to offer less equity to potential shareholders.
Many businesses don’t claim their R&D tax credit entitlement, because they think the scheme doesn’t apply to them. They think it only applies to businesses that employ staff wearing white lab coats. This isn’t the case, any business that is developing new or improved products, services or software can make a claim.
Both profit-making and loss-making businesses can benefit from R&D tax credits. Loss-making businesses can claim an R&D tax credit payable (cash) amount from HMRC, while profit-making businesses can significantly reduce their corporation tax bill. Businesses can then reinvest the tax credit or corporation tax savings back into the business to support further development activities.
To make the process of claiming your R&D tax credit entitlement easier, it is worth speaking to an R&D tax credits specialist to help you recover up to 33% of your development expenditure.
Contact us to find out how we can help you claim your full entitlement to R&D tax credits.