In conversation with Jonathan Scott, Tax Partner at Haines Watts.
Here Jonathan Scott, Tax Partner at Haines Watts, discusses how R&D tax incentives can help alleviate the growing pains that many business face as they look to scale-up and expand.
Growing a business is hard. It’s often made a lot harder when lacking the resources, cash and staff needed to meet the demands that come with it.
As it stands, the government’s R&D tax incentive is one of the biggest forms of tax relief available to SMEs. It can provide a valuable cash injection back into companies that are able to demonstrate they are making ‘appreciable improvements’ or overcoming technical/scientific problems.
HMRC provided almost £2.9bn of support through R&D relief last year. And in spite of our region’s ever-increasing reputation for innovation, the North East continues to have one of the lowest claim rates in the whole of the UK (representing only 2% of the total amount claimed nationally).
The average R&D claim for an SME produces over £50k of tax relief, and you could have that cash back in your bank in as little as 4/6 weeks. The cash generated from a claim could help support and drive business growth in a numbers of ways…
Re-invest in innovation (new products/services)
Steve Jobs famously said: “Innovation distinguishes between a leader and a follower.” Re-investing cash generated from an R&D claim back into innovation is a sure-fire way of igniting further growth.
With successful innovation comes new products or services, new markets, new customers and additional streams of revenue. Having an asset or service that your competitors don’t will ultimately lead to a competitive advantage in your marketplace.
Employ extra staff
Many growing companies often struggle to keep up with the demands of growth. Increasing sales and customers naturally means an increasing demand on current staff if that growth is not properly accommodated for within the business.
Bringing in extra staff can enable you to step up production or delivery. We’ve come across several companies who’ve used the cash refund generated from a claim to bring in marketing or business development specialists to help push the fruits of their innovation out into the market.
Companies are often held back by a lack of access to machinery and specialist equipment. As a result, we often come across companies that are forced to outsource certain processes to expensive external suppliers.
An R&D claim can generate the cash to purchase equipment/machinery to enable you to bring certain processes within the business. Thereby, helping you to increase efficiencies and profitability.
Pay off debts
Many companies that are growing and innovating generally do so at a significant expense. Bank loans, overdrafts and credit cards, can take a heavy hitting especially in early stage start-ups.
Paying off debts early with the money saved from an R&D claim can help improve cash flow in the long-term. It also puts your business sturdier position for the future.
Reward yourself and your team
At the end of the day, the cash generated from an R&D claim is yours to do with as you wish. Business owners work hard on growing companies; who’s to say the money generated from a claim can’t be spent taking some time away from work to recharge the batteries? Or better still rewarding the team that have been instrumental to your growth?
Haines Watts is a Top 15 firm of accountants supporting ambitious business owners in the North East with a range of services including strategic business advice, corporate finance and specialist tax relief. Why not get in touch with their team to find out if your business is eligible to claim back tax from the taxman in the form of R&D Tax Credits.