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.
The economy is crashing and no industry has been spared due to the coronavirus crisis. At the start of April, as many as one in five businesses were facing collapse within a month .
18 per cent report less than a month’s worth of cash in reserve, while 44 per cent say they have just one to three months’ worth of money . Finding new reserves or additional income has never been more urgent for many businesses in a desperate situation.
The Government is stepping in, with £330bn backing loans from banks. These have been slow to materialise, with a number of challenges along the way. Initially, there were reports of banks demanding personal guarantees and imposing eye-watering interest rates of 30 per cent .
Things have improved after a crackdown from the Chancellor, but loans will still need repaying. Those businesses taking on debt now may be stifled by it when the recovery comes.
A further £1.25bn support package for high-growth companies impacted by the crisis and SMEs focusing on research and development (R&D) has been announced.
Specifically, £500m for a ‘Future Fund’ aimed at scaled-up businesses, made up of funding from government and the private sector. The remainder comprises grants and loans available through Innovate UK aimed at SMEs doing R&D.
However, businesses should be aware there is a disconnect between the grants and loans offered by Innovate UK, which have been available for some years, and the Government’s R&D tax credit scheme – an incentive designed to reward UK companies for investing in innovation (something that we are seeing a lot of in the battle against coronavirus).
By their nature, grants and R&D tax credits are usually considered at different times, meaning there is then no scope to reverse a grant so it doesn’t affect an R&D claim. You can’t, as they say, put the genie back in its bottle.
This becomes more complex as Innovate UK has now moved some funding from grants to loans. Although the loan terms are more attractive than commercial loans, loans are still debts which have to be repaid and aren’t as advantageous as grants. Worse still, many companies don’t understand that these loans still carry the same restrictions as the grants on their R&D tax credit claims.
Businesses should therefore consider all funding options at the beginning of a project and choose the best combination for them. We urge them to get a greater understanding of all the facts before applying for Innovate UK’s fund as any decisions could affect the future value of R&D tax credit claims.
So why should businesses seriously consider R&D tax credits as a funding route?
Launched in 2000, R&D tax credits are also nothing new. They’re a proven and valuable source of cash for businesses and have supported significant growth. On average, SMEs get about £53,714 per claim based on 2017/18 figures.
Even smaller companies can receive much bigger claims – millions of pounds in some cases. The average for larger firms is about £601,000 based on the same data. This amount of money could help enterprises remain solvent so they can live to grow.
It may sound mercenary to look for “free cash” at a time of crisis, but that‘s misunderstanding how the credits work. R&D tax credits are a reward for businesses that have already invested in staff, materials and other project overheads.
More haste, less speed
For businesses in hibernation mode right now, it’s possible to undertake a claim by collaborating with a specialist to do the legwork for them.
The biggest mistake would be to rush it. However, with the right approach, it can be achieved quickly. 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, don’t 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.