Businesses who are looking to grow can take advantage of research and development (R&D) tax credits – a powerful government incentive that encourages innovation in the UK. The benefits not only help companies to fund their projects, they are also attractive to investors.
R&D tax credits have strategic value when it comes to presenting a portfolio to potential investors. With the help of a specialist, private equity houses, venture capitalists and high-growth businesses can use the relief to their strategic advantage. The benefits for both companies and investors are detailed below.
R&D tax credits reduce a business’ corporation tax liability and are, essentially, a cash benefit. The relief can enable organisations to invest in other assets such as new staff or equipment that they may otherwise have been unable to afford. Alternatively, it can go towards a second or third phase of the project, facilitating the continuation of the innovative activity.
Many investors in the technology sector are aware of the benefits that R&D tax credits can provide. They look to invest in companies that are sustaining rapid growth, so that their returns are maximised swiftly and they can exit after a shorter period. If a technology business is in the early stages of growth, it’s likely that a significant percentage of expenditure is going towards R&D activity. In such cases a larger amount of qualifying expenditure results in maximal relief and therefore a larger cash injection.
Securing funding can take many months, and businesses often feel the pinch if things don’t go according to plan. R&D tax credits can help in this respect by buying organisations a little time, ensuring they can get through the fundraising process more comfortably. The cash injection from R&D tax relief typically takes 8-12 weeks and puts money on the balance sheet, showing investors there’s capital in the business and that its owners are commercially aware.
This can also enable the business to delay the start of fundraising and ensure it’s in a financially strong position before going into a round of funding. This in turn can give a company the opportunity to raise its value before entering into the process, meaning less equity is sacrificed.
Negotiating R&D Tax Credits
Businesses that are starting out in the tech industry or who are new to R&D tax credits should seek the help of a specialist tax agency. In doing so they can ensure their claim is not only successful, but also includes all the qualifying expenditure they are eligible to claim for, thus maximising the cash injection.
Specialists can also help to advise on the timing of a claim so that companies can make the most of their available finances and plan a fundraising endeavour for the appropriate time. This can provide peace of mind to both directors and investors. For assistance with R&D tax solutions or to find out more about the scheme, contact your local R&D tax specialist today.