The most common problem that tech companies face is cash flow.
Around 57 per cent of SMEs experience cash flow problems, and one way of alleviating this problem is with research and development tax relief.
R&D tax credits enable qualifying companies to claim for certain costs and will even give them a cash refund if they’re loss-making.
R&D represents wide-ranging activities that businesses across different sectors and industries carry out.
To qualify, the project you’re undertaking must be aiming to resolve technological or scientific uncertainties. This can apply to cutting edge digital projects, but also more traditional manufacturing activities.
R&D that qualifies for tax relief may be focusing on improving or modifying existing products, processes or services, or creating brand new ones.
Because R&D can cover such a broad and diverse range of activities, it’s worth checking whether your work qualifies.
SMEs can apply for SME R&D relief. This lets you claim an additional 130 per cent of your qualifying costs from your annual profit.
This is on top of the usual 100 per cent deduction, giving you a total of 230 per cent in relief.
If you’re making a loss, you can claim a tax credit worth up to 14.5 per cent of your surrenderable loss.
To qualify, your business must employ fewer than 500 staff and have a turnover of under £100 million.
Larger companies can also claim, under Research and Development Expenditure (RDEC).
R&D activity can provide your business with a vital cash-flow lifeline. As a startup, for example, you may find yourself using up your initial capital investment rapidly.
However, if you get a significant tax break, you can reinvest this in your business, not only stemming the outward flow of capital but giving you more money to support your business growth.
Also, what you might not realise is that you can claim tax relief for activities you’re already undertaking. If you apply for R&D tax credits at the end of your company’s accounting period, it can cover qualifying work or projects up to two years before this date.
There are deadlines to consider. When claiming for work you’ve already carried out, this must fall within two years. But the tax relief can extend over several years, providing you keep claiming for it.
This way, you’re making savings on your corporation tax bill while continuing to develop your business and increasing your cash flow in the process.
We have plenty of expertise in helping clients make successful R&D tax credit claims.
We’ll help you gather the necessary evidence and put together a summary of all the relevant information for HMRC.
For more information, please contact us.