Increasing your cash flow with R&D

R&D tax credits can play a vital role in boosting cash flow, providing innovative, forward-thinking businesses with the funding they need to launch their next idea and stay one step ahead of the competition. Read more to learn about the benefits of R&D.

Running a business isn’t without its challenges, particular in those early ‘make or break’ stages when companies are striving to not just establish themselves, but thrive. However, for all the challenges, particularly the Brexit-shaped cloud that’s been generating increased uncertainty for the UK economy as a whole, the appetite for starting a business in Britain appears to remain buoyant.

The number of new UK businesses has increased

According to the latest set of National Statistics business population figures, there were 5.9 million private sector businesses in the UK at the start of last year. And if you compare this figure to the previous year’s report, you’ll see that this represents a 3.5% increase, which equates to more than 200,000 new UK companies.

In the meantime, the flexible labour market, high employment levels and competitive environment continue to make the UK a great place to do business. And this is further consolidated by the fact that it’s currently ranked within the top five in the Global Innovation Index, as reported in the Government’s Industrial Strategy.

But so too have company dissolutions

However, there’s another side to this picture. Companies House’s annual statistics show more than 500,000 companies were dissolved between 2018 and last year – the largest number of dissolutions since 2009 to 2010.

What led to these 508,865 dissolutions? It isn’t clear, however in our experience of helping businesses to develop, grow and succeed, there are several common contributing factors that can lead to business failure. They range from there being no market demand and having no clear strategy in place, to making poor management and business decisions and experiencing cash flow issues.

It’s not uncommon for cash flow to be one of the main stumbling blocks for businesses, regardless of sector in which they operate. Striking the right balance between initial investment and money going out vs. money coming in, can be a real juggling act in those early years.

Innovation = extra money

Traditional sources, such as business loans, and Government funding schemes are often seen as being the main forms of financial assistance. However, what many organisations don’t realise, is that they can be financially rewarded for their innovation through HMRC’s R&D tax credit scheme.

And with the average SME R&D tax claim standing at around £54,000, the financial benefits of venturing down the research and development tax relief route can significantly impact business’ future survival, providing them with funding to develop and grow, make their next idea happen and give them that competitive edge.

For businesses that may be falling behind due to lack of funding, a successful R&D tax claim could make all the difference between struggling to exist and confidently surviving. What’s more, forward-thinking businesses don’t have to change what they’re doing, R&D rewards them for their pioneering ways of working.

What are R&D tax credits?

They’re a UK tax incentive that’s designed to encourage companies to invest in innovation and reward those who are already innovating.

Open to organisations in all sectors, they give businesses the opportunity to claim back a proportion of their R&D expenditure as tax credits, which can reduce their tax bills or increase their taxable losses. Two different types of R&D tax credits are awarded, depending on the size of company:

  1. SME R&D tax credit scheme – for companies with fewer than 500 employees and revenue of less than 100 million euros (or whose balance sheet is less than 86 million euros). You can offset up to 33% of your R&D costs against your Corporation Tax and in some cases, you can receive this as a cash credit from HMRC.
  2. Research and Development Expenditure (RDEC) – aimed at companies with 500+ employees and revenues over 100 million euros and a balance sheet of more than 86 million euros. The level of tax relief can be worth around 8% of the money spent on R&D.

If you’re spending money on developing new processes, products or services and have introduced them within the last two to three years, then you could be eligible for R&D tax relief. To date, more than 300,000 claims have been made and £29.9 billion in tax relief has been claimed.

Our R&D success stories speak for themselves…

Since 2007, we’ve helped more than 2,000 UK businesses grow, simply by unlocking their creativity and innovation. One of these businesses includes specialist engineering company, 5th Dimension Tooling Ltd.

While they may have already been aware of R&D tax incentives when they first got in touch with us, our unique ability to get underneath the skin of their business and produce highly accurate R&D claims has been a pivotal turning point.

As a direct result of working with us, their claim value has increased by 175%. The company has used its successful R&D tax credit claims to offset some of the costs it incurred when investing in additional equipment and centralising its operations. This has enabled the firm to offer two new services to customers, setting it on course for increased future growth. (You can read the full case study here).

R&D tax relief is a valuable source of funding for many growing businesses and can be instrumental in boosting sector-wide cash flows and seeing companies soar. If you would like to follow in 5th Dimension’s footsteps, contact us today via live chat or by completing this short form, to see if you’re eligible to claim R&D tax credits or for wider advice and guidance on growing your business.

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