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Boosting company cash flow with R&D Tax Credits

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14 July 2020 | Matthew Dangell

Matthew Dangell, Business Development Director at Claim Capital discusses tax credits, a UK Government incentive designed to reward companies for investing in innovation.

Companies who spend money to research and develop new products, processes or services, often miss opportunities to help boost their cash flow. R&D Tax Credits are one of the largest tax reliefs available to UK companies, yet surprisingly, they are often overlooked or under-utilised.

Did you know up to 90% of companies eligible for R&D Tax Credits don’t claim them? There are several reasons why companies may not claim. Some of most common include:

  • Companies simply don’t know about R&D tax credits
  • The words, tax credits, imply only revenue generating or profitable companies can claim, but this is not the case
  • Companies may believe they are not doing work that is ‘technical enough’ to qualify. In reality, businesses across any sector are eligible.

What are R&D Tax Credits?

An R&D Tax Credit is a tax relief which lets companies reclaim a proportion of the capital spent on researching and developing a new product, process or service. Companies can claim up to 33% of these expenses, and with the average R&D Tax Claim size standing at £65,000, for most businesses it is a significant boost.

Loss-making companies receive this benefit in cash as a direct transfer from HMRC. Profitable companies can opt for a tax rebate or reduce future tax liabilities.

R&D Tax Credits were introduced in 2000 to help boost innovation in the UK. The Government provides businesses with a tax relief so that they may reinvest the money into further research and development that, in turn, will help boost the UK economy.

How to know if your company is eligible?

If you have created – or are currently creating – a new product, process or service, your business may be eligible to make an R&D Tax Claim. It doesn’t matter whether you are loss-making or profitable, or even if you have received grants to build and develop your idea.

For example, if your business is developing a new IoT product or service, the capital in your business will have been spent on a number of things to support this work, e.g., salaries, NI & Pensions contributions, subcontractors or software. These are all claimable expenses.

Take a look at your business to see where you have spent money to develop a new product, where have you spent money on subcontractors to research a particular field to benefit your business. It will soon become apparent that there are many expenses where you may be able to claim R&D Tax Credits.

How can you claim R&D Tax Credits?

There are many specialist R&D Tax Advisers to help you maximise your claim, receive your tax credits quickly, and let you get on with the business of innovating.

Claim times can vary but in my experience, claims can be turned around within 3-5 working days. Innovations within R&D tax consultancy services have led to benefits for companies of all sizes too, e.g., the introduction of advanced funding that allows companies to access their tax credit benefit on the day the claim is submitted rather than having to wait for HMRC to process the claim.