How R&D Tax Credits Make Your Business More Attractive to Investors and Some High Street Banks
You can claim the SME relief tax credit if you:
- Have less than 500 employees
- Have a turnover of under 100 million euros or a balance sheet of under 86 million euros
- Be pursuing qualifying research and development
The government created this credit to incentivize companies to invest in new technology and focus on innovation, even if those innovations lost money. However, it’s been subject to abuse, so beginning April 1, 2021, it will change to a cap of £20,000 plus 300% of the total Pay as you Earn (PAYE)and National Insurance contributions (check out our 2021 budget summary here regarding the latest updates). Either way, it’s still worth looking into.
To qualify for the tax credit, projects must advance knowledge in science or capability in science or technology and solve problems that a competent professional could not easily solve.
What costs qualify?
- Staff expenses
- Clinical trial volunteers
There may be other things you can use it for, as long as it helps your research. However, charities or universities are not able to take advantage of this credit.
Why high street banks and other investors love R&D tax credits
R&D tax credits take money you spent on R&D and refund it to you to by adding to company profits or as a cash payment if the company doesn’t turn a profit. This money can be reinvested to further research and innovation.
If you’re trying to attract investors, the R&D tax credit is a welcome sign of ready cash. The investor knows he will be funding strategic business innovation, not paying for employees or to keep the lights on. Investors like high-growth businesses that are likely to turn a profit. Frequently, companies that make R&D a priority are younger, hungrier and more willing to take risks. This could bode well for your investors.
The R&D tax credit can help keep a business afloat longer between funding rounds. R&D credits are processed quickly, so you’ll have cash in hand in a matter of weeks, not months. Investors like to see a positive bank balance, and the tax credit can help you show this to them. Also, the less time you have to spend wooing potential investors is time you can spend on developing products that will be profitable.
The R&D tax credit is available even if the project failed. This frees up businesses to do more experimental work, to push the boundaries. Some of these projects will fail, but it’s the truly risky that pushes technology and science forward.
On the other hand, innovation could mean improving an existing product to make it more efficient or easier to use. Only 26% of employees working in research and development felt that what they were working on was highly innovative. Being so familiar with the project may lead them to see it as mundane, or just what they do all day, rather than experimental.
Many companies are not claiming the R&D tax credit for activities which would qualify. This is a mistake. Investors and high street banks like to see positive cash flow, as well as the development of products which are not only innovative but will increase profits. After all, ultimately an investor wants to make money on the investment.
Join us on LinkedIn Live!
If you liked this, then you’ll love our upcoming LinkedIn Live event!
On the 23rd of April, 2021 at 11 am, our very own CEO Wesley Rashid and R&D Manager Anh Vu will be joined by Edo Salvesen, CFA and Director of Finstock Capital, to discuss everything you need to know about claiming R&D Tax Credits in - “Unlocking your R&D Potential”.
Attendees will be invited to join Anh for a complimentary 1-on-1 R&D clinic, don't miss it!