If you are planning on starting an investment round to generate extra funding for your business, it is critical to understand why investors love R&D tax credits and what you can do everything you can to access them.
Firstly, it is important to understand whether your company is eligible to access R&D tax credits.
How can I find out if my company is eligible for R&D tax credits?
HMRC’s eligibility criteria for R&D tax credit is broad, as it aims to encompass almost all industries in the UK. Put simply, a project must tick each of the following boxes:
- It investigated potential advancements in science or technology
- It had to overcome an element of technological uncertainty, in that a problem could not be easily solved by a professional in your industry
Note: Failed or aborted R&D projects are also eligible for tax relief. HMRC does not specify that the project must be commercially successful. Furthermore, a business can claim for R&D projects carried out on behalf of a client, as well as your own tasks.
75% of our clients didn’t even know that R&D Tax credits existed before working with Kene Partners. By offsetting costs and profits derived from R&D projects, your business can benefit from significant tax savings.
What types of R&D expenditure can I claim for?
If your R&D project meets any of the eligibility criteria above, you can subsequently claim for the following expenses generated throughout:
- Staffing costs of full-time employees, spanning salaries, employer National Insurance contributions (NICs) and pension contributions
- The cost of hiring freelancers and subcontractors to help undertake the project
- The outlay for some types of industry software
- The cost of consumables and materials ‘used up or transformed by the R&D process’ e.g. power, heat and light
R&D tax credits are available to businesses big and small
At Kene Partners, we work with a broad mix of companies from start-up enterprises and small and medium-sized businesses (SMEs) through to larger more complex companies to help them claim the R&D tax credits they are rightfully owed.
- Start-ups and SMEs
For businesses with less than 500 employees, generating less than €100 million turnover or having less than€86 million in gross assets, our specialist R&D incentive advisers can help you claim back up to 33p for every £1 spent on R&D through the SME R&D Relief scheme. We can work with you to calculate your overall tax relief, so that you can focus on doing what you do best – running your business.
- Large companies
Companies with more than 500 employees, generating more than €100 million turnover and boasting over €86 million in gross assets can claim back 11p in every pound of qualifying R&D expenditure through the R&D Expenditure Credit (RDEC). We can help optimise new and previous R&D tax claims to obtain higher rebates and automate ongoing annual claims to minimise your company’s overall input in the process.
On average, Kene Partners has secured £66,000 in R&D tax relief for its clients which continues to be reinvested back into their businesses.
So, why do investors love R&D tax credits so much?
R&D tax credits effectively enhance the expenditure incurred in doing the R&D and refund this to offset against company profits or as a cash sum if the company is loss-making. This typically results in the re-investment towards further developing the products and services.
For example, if your business is struggling with cash flow, it may need an investor to pump more money into the company to fund staffing costs. However, these costs could be funded following an R&D Tax Claim based reimbursement instead, thus freeing up investor funds for other means or reducing reliance on investors altogether. Whatever the route of re-investment of R&D tax credit based funds, additional value has been added to the business that enables it to seek a wider range of business options.
In addition, R&D tax credits may also enable spending projects and resources that will push the business forward such as new members of staff, training, equipment and even acquisitions.
Ultimately, investors are interested in the financial viability of a business and its bottom line. R&D Tax Credits further enhance the business towards profitability through reducing reliance on investor funds, thus creating further short and long term financial security.
Furthermore, owners of a business may seek to sell the company eventually, in which case, R&D Tax Credits are likely to enable achieving significantly higher valuation whilst maintaining equity levels as the investment round proceeds leading up to that final decision..
R&D Tax Credits present an investment route with minimal risk and maximum value. At Kene Partners, we work on a success fee basis based on the amount of tax savings received. If there is no benefit there is no fee.