Blog: Increasing cash flow with R&D tax credits
Running a business isn’t without its challenges, particular in those early ‘make or break’ stages. However, for all the challenges, the appetite for starting a business in Britain appears to remain buoyant even in the midst of Brexit and the Covid-19 pandemic.
The number of new UK businesses has increased
According to the latest set of National Statistics business population figures, there were 6.0 million private sector businesses in the UK at the start of 2020 – an increase of 1.9%, or 113,000 businesses, on 2019.
But so too have company dissolutions
There is, of course, always another side to the picture.
Companies House’s statistics show more than 500,000 companies were dissolved between 2019 and 2020 – the largest number of dissolutions since the 2009 to 2010 period. What’s more, if you compare March 2020 to March 2019, you can clearly see the emergence of the Coronavirus pandemic taking its toll, and we expect an even higher number of dissolutions when next years’ statistics are released.
What led to these 536,934 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:
- No market demand
- No clear strategy in place
- Poor management and business decisions
- Cash flow issues
Indeed, cash flow is one of the main stumbling blocks for businesses, regardless of the 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.
With the average SME R&D tax claim standing at around £63,000, the financial benefits of venturing down the research and development tax relief route can significantly impact business’ future survival. 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:
- 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.
- 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).
If you would like to follow in 5th Dimension’s footsteps contact us today to see if you’re eligible to claim R&D tax credits or for wider advice and guidance on growing your business.