Across the world, countries have made R&D tax schemes and innovation incentives available to businesses within their region. These have been specifically designed to encourage businesses, both small and large, to invest more heavily in research and development activities. In other words, innovation can benefit the broader economy. That being said, many companies still aren’t aware of the benefits they can earn from R&D innovation incentives.
There are many reasons why your business should consider making a claim on their next return, including getting access to specific cashflows and tax savings. The bigger picture includes accelerating business growth, job creation, and future return on investment (ROI). Let’s take a look at some of the chief financial benefits of claiming R&D credits for your business.
Immediate cash availability
Once reaped, tax credits can convert into an immediate source of cash, you can invest straight back into your business. This kind of funding is also non-repayable. This means that, unlike a business loan, there’s nothing to repay once you’ve used the money. You can think of it as a sort of cash injection for your business that you can use towards future projects or re-invest in current R&D.
Reduction of current and future tax liabilities
Making a claim can result in a substantial reduction in current and future tax liabilities. That applies, regardless of whether your business has made a gain or loss. For profit-making companies who make a claim in the same year as filing for their corporate tax return, an R&D tax credit can be received as a corporate tax saving. Companies making a loss can elect to either carry back the R&D enhanced loss to a previous, profitable year or carry it forward to offset it against future profits. Yet another alternative to this is a cash credit that loss-making companies can receive from HMRC to boost cash flow.
Increased business growth
In addition to the more immediate tax and cash flow benefits provided by R&D incentives, there are broader impacts. For one, R&D schemes are usually sector agnostic. That means it doesn’t matter what sector your company is doing research in – you can still make a viable claim. As a business, this should encourage you to pursue and expand into new markets. There is also a broad range of expenses eligible for a claim, including direct staffing costs. That should result in greater facilitation of job creation and security within your company.
In the long term, taking advantage of the R&D tax incentives available in your region allows for better, more deliberate financial planning. In particular, this can help your company to concentrate and prioritise resources and investment more around research and development. With the risk of investing in innovation reduced, your business can confidently focus its time, resources and energy on developing new solutions to long-lasting problems, from advancing technological capability to improving quality of life.
Hopefully, you’re now more aware of the valuable benefits presented by R&D tax credits. This should give you some insight into how they might be able to help your business.