Securing Funding in a Time of Crisis
Businesses across the UK are stuck in an unprecedented time of risk, with many having trouble simply staying solvent. However, there may still be avenues for funding that some companies have not considered.
Simon Brown, founder and managing director of R&D tax credit specialist ForrestBrown, explains how vital funding for businesses is being overlooked – yet it could be available in just four weeks and need never be paid back.
It barely needs saying that the economy is in crisis. At the start of April, as many as one in five businesses were facing collapse within a month, while 44 per cent say they have just one to three months’ worth of money. The need to find new reserves or additional income has never been more urgent for businesses of all sizes and in all sectors.
The Government is stepping in, with £330bn backing loans from banks. But these have been slow to materialise and there have been a number of challenges along the way. Things have improved after a crackdown from the chancellor, but the loans will still need repaying at some point. Those businesses taking on debt now may be stifled by it when the recovery comes.
However, there is another way. Research and development (R&D) tax credits are a Government incentive designed to reward UK companies for investing in innovation – something we’re seeing a lot of in the battle against coronavirus.
They’re nothing new, having been launched back in 2000. On average, SMEs get about £53,714 per claim based on 2017/18 figures. However, even smaller companies can receive much bigger claims – millions of pounds in some cases. This amount of money could help enterprises remain solvent so they can live to grow.
It may sound mercenary to be looking for “free cash” at a time of crisis, but that would be a misunderstanding of how the credits work. R&D tax credits are a reward for businesses that have already invested in staff, materials and other project overheads. In fact, HMRC itself has found that for every £1 of tax foregone, up to £2.35 of additional R&D is stimulated. Perhaps every £1 invested in saving innovative businesses across the country could save £billions in lost tax revenue, unemployment payments and sluggish growth after the crisis.
Research and development (R&D) tax credits are a Government incentive designed to reward UK companies for investing in innovation – something we’re seeing a lot of in the battle against coronavirus.
One shrewd business using R&D tax credits to help plug the funding gaps and get through this challenging time is our new main contracting client MY Construction.
On 27 March, just five days before their tax year-end, we had a first call where our R&D process was outlined and engagement letter was sent. They were soon approving the submission we had prepared for the year ended 31 March 2018. The amount? Hundreds of thousands coming back into the business when they needed it most.
That’s the transformative potential of this incentive done properly. However, demand is high and the pressure facing the HMRC to process applications is extraordinary. With this in mind, it’s worth getting the claim right first time. With businesses hanging in the balance, there’s no margin for error.
Getting It Right
A claim starts with the gathering of all the appropriate information – usually data such as payroll and accounts. Next comes the identification of qualifying activities and costs, a foot wrong at this stage can cause problems down the line. To be sure, firms really need a specialist so they neither over – nor under claim.
From these identified qualifying activities, a benefit figure can be calculated. But to be accurate, it needs to decisively navigate a host of business-specific complicating factors – like grants and subcontracting arrangements.
Overall it must have a robust methodology behind it. This should include a technical narrative, a summary of costs incurred and how the claim has been calculated. The next step is submitting the report in the way HMRC wants to see it. It’s vital to update the Corporation Tax return amended to include the R&D tax credit calculation.
More Haste, Less Speed
Even if a business is in hibernation mode right now, it is possible to undertake a claim by collaborating with a specialist to do the legwork for them. But the biggest mistake would be to rush it. There’s been talk of businesses attempting to undertake the claim in 24 hours. This is a recipe for disaster and a sure way of inviting an enquiry into a poor claim that could cost a business dearly when they can least afford it.
However, it can be achieved quickly – if not overnight – with the right approach. Even in lockdown. Many businesses have resorted to home and remote working, and this should be harnessed to ensure the appropriate people are included in the claim process.
In summary, it’s important not to underestimate the value of R&D tax credits done properly. In challenging times, businesses need every bit of help they can get. That means not leaving a penny of the value you’ve earned unclaimed.