Tag Archive for: R&D Tax Credits

R&D Tax Credits

The Hidden Challenges of R&D Tax Credits and Grants

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There is a myth that it’s not possible for one business to benefit from both R&D tax credits and grants. The reality is that these two funding sources actually have different purposes and are designed to provide a different type of support. As a result, they can work really well in tandem. However, if your business is looking to benefit from R&D tax credits and grants then there are some hidden challenges that it’s important to be aware of.

How do Grants and R&D Tax Credits Work?

  • Grants. A type of funding that can be used to offset the costs of projects that are in the pipeline. Usually, grants are made available where there is a particularly innovative product of service being designed and created. Grants are usually applied for in advance. The funding can often be accessed more quickly with a Grant Advance Loan.
  • R&D tax credits. A much broader spectrum of funding that is intended to be available to any business that is carrying out research and development. There is no requirement for that research and development to result in commercial success for R&D tax credits eligibility. The tax credits are claimed retrospectively.

Is it Possible to get Both?

If your business is eligible then yes it’s entirely possible to benefit from both a grant and R&D tax credits. However, it’s important to note that one can affect eligibility for the other in certain circumstances. What’s really key to have clarity on here is whether a grant you’re applying for (or have applied for) is classified as notified state aid. Because, where that’s the case, this excludes a claim under the SME R&D tax credits scheme. An R&D tax credit claim could still be made if the grant received was project specific. However, this would need to be made under the RDEC scheme, which is the less lucrative of the two.

What are the Hidden Challenges of R&D Tax Credits and Grants?

● Making the right applications. The first, and most obvious, challenge is to ensure that you’re not applying for a grant that could mean your business isn’t eligible to make an R&D tax credit claim under the SME scheme as a result. Whether a grant counts as notifiable state aid can be a complex area and it’s important to make sure you get the right advice so that you’re able to secure the funding that your business needs. If you’re not sure where you stand, it’s always best to seek expert advice.
● The timing of funds received. The second challenge is to ensure that the funding you received is being paid into your business at a time that will be beneficial. Grants are applied for in advance of the project beginning while R&D tax credits are paid out retrospectively. Getting the timing right on this can be critical to ensuring that you have the cash flow you need, when you need it. A Grant Advance Loan can be a simple way to solve this problem, as it allows for a proportion of the future funding to be paid to your business now.

Utilise Advance Funding

Grant funding and R&D tax credits have a lot to offer any innovative business. Hidden challenges exist but can simple to solve. Solutions such as SPRK’s R&D tax credit loan, or Innovation Term Loans can enable greater access to capital. Get in touch, and not only can you get assistance from our trusted advisors, but you can learn more about easing cash flow struggles with our R&D advance funding.

 

 

r&d tax credits

Your Guide to R&D Tax Credits

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Research and Development (R&D) Tax Credits exist in the UK to reward innovative companies. This government incentive can be a valuable resource for businesses that are looking to channel more funding into R&D and accelerate the impact this can have on future growth. If you’re looking at R&D Tax Credits for your organisation then this is what you need to know.

 

What is R&D?

What counts as R&D for the purpose of R&D Tax Credits is a crucial question. The criteria that have been defined for this are intentionally broad. It is essentially where your business is taking a risk by trying to resolve scientific or technical uncertainties.

 

How do R&D Tax Credits Work?

This is, essentially, tax relief. Where cash is being spent on R&D then a claim can be made to recover this cost, either in the form of a cash payment or a corporation tax reduction. If your business is developing new processes, products and services – or enhancing those that already exist – then there is the opportunity to enjoy the benefits of R&D Tax Credits. This isn’t just about businesses that are operating in fields like science and technology either. There are funding opportunities in every sector and the scope for identifying R&D is intentionally broad.

 

What makes your business eligible for a claim?

Eligibility is very simple – your business must be a limited company registered in the UK for corporation tax, have carried out activities that count as qualifying research and development and spent money on those activities. There are no sector limits on businesses that are eligible to claim R&D Tax Credits – you could be operating in aerospace, construction, technology or fabrication. There are currently two schemes available:

● SME. This is for businesses with less than 500 staff and no more than EUR 100 million turnover or EUR 68 million in gross assets.
● Large company. The second R&D Tax Credits scheme will apply to larger companies with figures that top these limits.

 

What costs Qualify?

R&D Tax Credits can be used to cover the cash that has been spent on R&D in order to make it happen. There are specific costs that qualify, including the cost of the staff required for the project, such as salaries, pension contributions and reimbursed expenses. Other costs that qualify include some types of software, the cost of contractors and freelancers and payments made to those who have taken part in clinical trials.

 

What are R&D Tax Credit Rates?

There are different rates for different types of companies. For example, the rate for loss-making companies is 18.6p for every £1 spent. Profit-making SMEs can claim 21.5p for every £1 spent. And large companies can claim 20p for every £1 spent. The size of the average claim in the UK is £53,663.

 

Make the most of R&D Funding

R&D Tax Credits can provide essential support for ongoing innovation within your business and are well worth investigating. SPRK R&D Advance Funding can support you with access to capital on an ad hoc, quarterly, or annual basis – it’s entirely up to you and what works best for your business. If you’re unsure on the best approach, get in touch with our dedicated advisors – let’s progress together.

 

r&d tax credit loans

Are you eligible for R&D Tax Credit Loans?

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R&D tax credit is a UK government initiative that is designed to encourage innovation – and reward those companies that are investing in it. R&D tax credit loans help your business’s cash flow by providing greater levels of control/access to this capital. Rather than waiting for cash to be received as part of this process, R&D tax credit loans provide an upfront advance so that this can be accessed now.

How to Claim R&D Tax Relief

R&D tax relief is claimed through the process of submitting a corporation tax return on behalf of the company at the end of the financial year. It’s possible to still make a claim up to two years after the end of the financial period that the claim relates to. Once the claim has been agreed by HMRC then the process of delivering the funds can be started.

How can you get R&D Tax Credit Loans?

Your business will need to be eligible for R&D tax credits. This type of tax relief is generally available to businesses that are carrying out innovative activities that are designed to develop new products or services – or enhance existing ones. Success with R&D tax credits requires that an activity is part of a specific project that is focused on science or technology and that its goal is to try and create an advance in knowledge or capability that resolves a current uncertainty.

Once you have done this, R&D advance funding can give you greater access to capital on an ad hoc, quarterly, or annual basis – it’s entirely up to you and what works best for your business.

Two key criteria for eligibility

● Activities that qualify. If you’re going to be successful with R&D tax credit loans then the R&D activities that your business is paying for need to be eligible for R&D tax credits. There is a long, and specific, list of the types of activities that this funding is designed to encompass. These include new process creation, research (e.g. discovering the right materials, solutions or requirements), routine analysis, improving current processes or creating an advance, developing and testing new products and prototypes, creating new services that compliment existing capabilities, testing and developing technological advances.
● Costs that qualify. The costs that will be covered by R&D tax credit loans include certain types of expenses that relate to R&D. For example, project management fees are included as well as the staffing costs of any staff that are working on the project. Other costs that qualify include outsourced or external workers – such as contractors or freelancers – the software costs of a project and the materials and utilities that the project has used. It’s worth noting that staff costs are often one of the biggest costs in R&D.

Which industries can apply for R&D Tax Credit Loans?

There is no specific industry requirement and this is not limited to obvious R&D areas like technology. In fact, businesses from any sector can – and have – successfully applied for R&D tax credit loans.

SPRK Capital: We’re here to help

R&D Tax Credit Loans make it easy to access the cash you will receive via R&D tax credits sooner, rather than later. We understand the process can be daunting, so why not reach out to us? Our trusted advisors will get you on the right track towards maximising your business’ financial efficiency.

Grant Funding: How can tech start-ups fund their ideas quickly

Grant Funding: How can tech start-ups fund their ideas quickly

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Funding can make all the difference when it comes to success or failure. Being able to get to market quickly requires an availability of resources, something that not all start-ups have. Tech start-ups might be attracting a lot of attention today but there are still plenty of challenges when it comes to getting that all-essential capital through the door. So, how can tech start-ups fund ideas quickly and optimise their chances of success?

Tech start-ups have plenty of options

The fields of science and technology are continuously changing today, as more businesses seek to innovate and develop new products, services and tech. Crucial to this is the process of R&D, which is where the most essential work often takes place. If there isn’t the cash flow to invest in R&D then, for many businesses, the story has ended before it has begun. However, luckily for tech start-ups there tend to be lots of options for those that are looking to fund their ideas quickly.

  • R&D Tax Credits – Companies that are investing in R&D are highly likely to be carrying out activities that make them eligible for R&D tax credits. The result of making a claim like this could be either a reduction in corporation tax bill or a cash payment so it’s well worth the process of applying. Some of the obvious benefits are that R&D tax credits don’t need to be repaid (unlike debt finance) and there is no loss of control in the company as there might be with an investor.
  • Equity Investment – There are lots of advantages to working with VCs if you are a tech start-up looking to grow, fast. The most obvious is the cash investment that will be poured into your business, creating vital funds to help get products to market. The second is that VCs also tend to come with access to networks of people who can help to advise a business and accelerate its growth. Plus, an experienced VC can help to identify any potential problems or weaknesses and increase the chances of success. The EIS/SEIS schemes can be useful when it comes to attracting investors as they reward investments made with tax breaks, which will instantly make your company more attractive.
  • Grant Funding – Another great option for tech start-ups looking to fund ideas is to apply for a grant. Many grants today are aimed at companies in innovative areas that are pushing the boundaries of what is possible in the technology field. Grant funding can provide the cash incentive necessary to take a project to the next level – and has the advantage that it is not required to be repaid. What’s important is to ensure that you pick the right grant so as not to waste time on applications and also to make sure that you’re happy with whatever strings might be attached.

SPRK Grant Advance Funding & R&D Tax Credit Loans

From R&D tax credits to equity investment and grant funding, there are many ways for tech start-ups to acquire funding today. SPRK Capital are the leading provider of R&D tax credit loans and grant advance funding in the UK. We help businesses spark their innovation by giving them access to their funding capital when they need it.

We can even help by providing financing terms to assist your grant application. The process is online and easy with straightforward fees, giving you the opportunity to make your capital go further, retain equity and power your innovation.

Find out more about our Grant Advance Funding or R&D Tax Credit Loans, or you can contact us directly if you have an enquiry.

R&D Tax Credits for Agritech Sector

R&D Tax Credits for the Agritech Sector

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Any business in the Agritech sector in the UK could potentially have access to R&D tax credits that could be transformative for innovation and development. The advantage of R&D tax credits for the Agritech sector is that they provide resources for further innovation and to invest in research. Given the vital importance of technology in advancing agriculture there is a clear need to support the enterprises that are doing this crucial work at this time.

Why is Agritech so important?

There are many factors putting pressure on the agriculture sector today, from rising global population numbers to global warming and challenges with soil. Advances in technology hold the key when it comes to how to tackle these problems – Agritech is the future. It has been through Agritech developments that we have already begun to solve many of the problems that the agriculture industry faces. And when it comes to increasing yields, feeding global populations and managing the changing weather conditions caused by climate change, it’s going to be Agritech that drives us forward.

R&D tax credits for the Agritech sector

Agritech is a sector where scientists, engineers and technologists are working with a wide spectrum of established companies and start-ups to solve problems in agriculture, farming and food production. Many of the projects that are being carried out today in Agritech will be eligible for R&D tax credits. These incentives make it possible for businesses working in Agritech to recoup some of the investment that has been made in innovation and research. Given that recent figures showed a 11% drop in R&D expenditure in industries like agriculture there is clearly an incentive required to bring more resources into this critical area. The average claim for R&D tax credits is £42,7373, so the financial benefit can be significant.

What is likely to qualify as R&D in Agritech?

As there is so much innovation involved in a tech-driven sector like Agritech, it’s likely that there will be many activities that come under the heading of R&D. Some examples of projects that could qualify for this kind of support include experimenting with crop growth or animal nutrition in order to improve crop yields. Looking at ways to use more renewable technology in agriculture could also be covered. Creating new pesticides and fertilisers is another area where R&D tax credits could provide valuable support.

Agritech and sustainability

The developments and innovations of Agritech are going to have a vital role to play in making agriculture more sustainable. This is the technology that gives farmers the tools to increase productivity while at the same time reducing costs, using technology and data rather than seeking more land to farm. Big data and the role it will play in the future of agriculture is a prime example of how Agritech can contribute to a more sustainable future – and also of the type of Agritech project likely to attract tax relief.

R&D tax credits for the Agritech sector are open to any business with activities that might be eligible – and could provide five-figure funding for those that are successful.

How can SPRK Capital help?

SPRK Capital can provide expert R&D tax credit advice through our network of SPRK Approved Advisors. Once you’ve made a successful R&D claim, SPRK Capital’s R&D tax credit loans act as a form of advance funding, so you can access your capital sooner.

Learn more about our R&D tax credit loans and check if you’re eligible using our “R&D Loan Eligibility Checker“

Recent changes at HMRC have seen compliance pushed to the top of the agenda with much more of an emphasis on tackling abuse of the R&D tax credits system.

R&D Tax Credits: HMRC Compliance Guide

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R&D tax credits provide a fantastic way to fund innovation in your business. Recent changes at HMRC have seen compliance pushed to the top of the agenda with much more of an emphasis on tackling abuse of the R&D tax credits system. This shift has created hesitancy among many businesses that might otherwise have been using R&D tax credits. While this is understandable it’s simply not worth missing out on the opportunity to obtain this kind of cash flow support for your enterprise by not making a claim. So, here’s what you need to know about HMRC compliance.

Why is this guide necessary?

Because recent months have seen HMRC getting much stricter in terms of R&D tax credits claims, especially those that don’t comply with basic requirements. There has no doubt been abuse of the system and this has created problems for those who are genuinely eligible for R&D tax credits and could benefit significantly from them. HMRC has now invested in more fraud investigators to help weed out those that shouldn’t be receiving R&D tax credits – with a £510 million bump in investment from the government to help achieve this. In terms of what this means for anyone who wants to make a claim for R&D tax credits it should not put you off. It’s much more about focusing on ensuring that your claim is accurate and well put together – and also allowing some additional time for processing given the extra checks that are being put in place.

The HMRC enquiry/compliance check

Although this might sound like a pretty intimidating process it’s actually just HMRC checking that your claim meets the requirements for R&D tax credits. Call it an enquiry or call it a compliance check, all that is happening is that the information being submitted to back up your claim is being verified. That might look like requests for more information to make sure that the claim is a genuine one and that what you’ve submitted complies with the rules of R&D tax credits.

Is a compliance check inevitable?

No. When you make a claim, the paperwork will be examined to look at what you’re claiming for, how much you’re claiming for and to carry out any extra checks, such as comparing the amounts that you’re claiming for against industry benchmarks. If these don’t seem to match up then HMRC might require more information – it’s not about penalising you and your business but ensuring that the claim is genuine. There are a number of situations that are more likely to trigger a compliance check. These include:

  • If your claim value has increased significantly.
  • The R&D projects that you’re doing are either new for you or in your industry.
  • There is a lack of evidence to support your claim.
  • The financial data doesn’t make sense, for example it hasn’t been calculated correctly.
  • Claims that include subcontractors are often more likely to be compliance checked.
  • It may just be a random spot check.

How does the compliance check work?

You’ll be notified by letter from HMRC that a compliance check is going to take place. The letter will include a list of questions that you’ll need to supply answers to – and you should aim to do this within 30 days of receiving the letter. You may also be required to provide some supporting evidence along with your answers. That could be enough to close the enquiry into your claim. If it’s not then there may be further inquiries, which usually take the form of a face-to-face meeting where you’ll be asked questions about your claim and you’ll be able to respond.

What are the timeframes involved?

Most enquiries take a minimum of three months to conclude. However, it’s worth noting that some can take years – these are often the checks where poor information, or no information, has been supplied or where there has been a lack of cooperation. So, if you’re looking to expedite the process it’s a good idea to give HMRC what they want as quickly as possible.

What kind of outcomes can you expect from an enquiry?

  • A delay to your claim. If your claim is under an enquiry then any payout will be paused. Most payouts take around 40 days at the moment and with an enquiry that’s likely to be longer.
  • A successful defence. Especially if you’re working with an advisor, a successful defence is a likely outcome and this will mean that the HMRC enquiry has found no reason to stop the claim.
  • A reduction in the claim size. It may be that HMRC feels that the size of the claim made was too large. In that case, you’ll still receive R&D tax credits but in a lesser amount.
  • Investigation into previous claims. If HMRC suspects that there has been a deliberate fraud then it has the right to go back and check all the claims that you’ve made over the past six years. It’s worth bearing in mind that, unfortunately, once you’ve gone through an enquiry you may also have a flag against your business for future claims.
  • A full scale audit. Sometimes, you may find that HMRC decides to carry out a full audit as a result of an enquiry into R&D tax credits.
  • These only apply to fraudulent claims.

You can challenge the outcome of your enquiry if you’re not happy with the decision.

How to avoid an HMRC compliance check

Unfortunately, you can’t avoid it. The best way to ensure that your claim documents don’t trigger an enquiry is to work with a specialist advisor. However, random spot checks can still occur.

Any dealings with HMRC can feel intimidating, especially when it comes to something important like R&D tax credits. However, an enquiry or compliance check doesn’t need to mean the end of the line for your claim. Either way, working with an experienced advisor can help your business to successfully navigate whatever happens.

Is R&D tax relief state aid?

Is R&D tax relief considered state aid?

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What is R&D tax relief?

R&D tax relief provides a way for the UK government to reward innovative companies that are investing in development. It’s a great option for enterprises, large and small, looking to fund ongoing R&D. In terms of whether R&D tax relief is state aid, this matters because there are limits on how much state aid can be claimed by UK companies so it’s important to work out what is likely to be the best option for you.

Also known as R&D tax credits, this is a form of relief that is available when companies are investing in projects that are designed to be innovative. This often means those that are focused on making an advance in science, technology, maths or social sciences. There are a number of key requirements for a business to be eligible for R&D tax relief, including that the project is designed to try and overcome an area of uncertainty and that the challenge is not one that could easily be worked out by a professional in the field. The project must also be focused on creating an advance in the field as a whole – and not just for the individual business. There are a number of criteria that relate to the types of expenses that can be included in a claim for R&D tax relief too.

What types of R&D tax relief are available?

  • SME relief – This is available to companies with 500, or fewer, employees and a turnover of less than €100 million (or a balance sheet total that is under €86 million). Qualifying companies can deduct an extra 130% of costs from annual profit before tax (this is on top of the standard 100% deduction, which means a total of 230%).
  • Larger company relief – This is called Research and Development Expenditure Credit (RDEC) and is estimated at around 13% of the qualifying expenditure.

Is R&D tax relief state aid?

The reason this matters is that it’s only possible to access one type of state aid in the UK. So, ensuring that you’re getting the best support from the most sensible option for you is vital. State aid is defined as any advantage that is given by public authorities to organisations on a selective basis. Because this will effectively create a competitive advantage for a company it needs to be justifiable. R&D tax relief is generally considered to be state aid, which is why your business will not be eligible for it if you have already claimed for another type of state aid. For example, if you have already benefited from grant funding or some kind of COVID support package from the government, then it’s unlikely that you’ll be able to claim R&D tax relief.

R&D tax relief offers a way to help support ongoing investment in innovation for any business. However, it does come under the category of state aid, which is why it’s so important to carefully manage this and any other financial support your business receives.

An R&D tax credit loan is an alternative, non-dilutive source of capital for those businesses. SPRK delivers this by positioning itself as the hub between R&D companies seeking capital, third-party data providers and expert R&D advisers.

We’re passionate about supporting businesses that are brave and bold in staying ahead of the curve and are creating economic growth and opportunities for our country. With SPRK Capital’s R&D tax credit loans, you can get advance funding on your R&D tax claim.

Apply here.

Additional Support for R&D Intensive Enterprises

Additional Support for R&D Intensive Enterprises

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The UK government has announced additional support for research and development (R&D) intensive small and medium-sized enterprises (SMEs) following the recent cut in R&D tax credit rates. This relief package, which came into effect on 1st April 2023, aims to ensure that innovation and development continue to flourish among loss-making R&D-intensive SMEs by providing eligible companies with support.

The relief provides eligible companies with £27 for every £100 invested in R&D. Only SMEs are eligible for this relief, which is defined by HMRC as companies with fewer than 500 employees, an annual turnover of £100 million or a balance sheet of less than £86 million.

What does “R&D Intensive” mean?

To qualify for R&D intensive relief, SMEs need to ensure that their qualifying R&D expenditure covers at least 40% of total spending during the specific financial period. HMRC will calculate intensity as the proportion of an SME’s qualifying expenditure compared to its total spending. If an SME meets the eligibility criteria, it can claim R&D tax credits using the 14.5% credit rate for qualifying expenditures. If the SME is profitable or the threshold is not met, the new 10% rate will apply.

The intensity ratio used in this process doesn’t just apply to a single company but also to any connected companies. Therefore, it is essential for SMEs to identify eligible expenditures to make a fully compliant claim.

The recent changes to R&D tax credits are likely to hit loss-making R&D-intensive SMEs particularly hard. Many innovative businesses rely on R&D tax credits for reliable annual income to help fuel ongoing innovation. The changes recognise the impact of the new landscape and help ease the challenges for those most affected.

R&D intensive relief provides additional support for SMEs and recognises their importance to the British economy. The relief is designed to take the sting out of the changes made and help SMEs continue to innovate and develop. There are many benefits to opting for R&D tax credits over something else like a loan or investment, including that there is no need to pay the amount back, and no equity is lost.

Amidst uncertain times, and ever-changing R&D schemes, the UK government’s recent announcement of additional support for R&D-intensive enterprises is welcome news for businesses.

Sprk Capital R&D Tax Credit Loans & Grant Advance Funding

With SPRK Capital’s R&D tax credit loans, you can get advance funding on your R&D tax claim. SPRK Advances are an alternative, non-dilutive source of capital for those businesses. SPRK delivers this by positioning itself as the hub between R&D companies seeking capital, third-party data providers and expert R&D advisers.

Contact us today for more information on how we can help drive innovation within your business.

R&D Tax Credits for Software Development Companies

R&D Tax Credits for Software Development Companies

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Can software companies claim R&D tax relief?

The government’s R&D tax credits scheme rewards businesses committing time and resources to innovation. Software development companies are ideal candidates for support under the scheme and can benefit significantly from making a claim. The incentives under the scheme can allow software development companies to fuel growth and further innovation, making it a smart choice to move the business forward.

How do R&D tax credits work for software development companies?

The R&D tax credits scheme rewards businesses that are pushing into fields such as technology and seeking to tackle uncertainties, taking risks to solve technological challenges. There are many different areas that any software development company might be involved in that could count as qualifying activities.. These include AI and machine learning, data processing and storage, IoT, cloud computing, robotics and augmented reality. R&D tax credits reward many different types of businesses involved in software development, from those supporting other businesses in their software projects to enterprises providing Software as a Service (SaaS) and companies involved in bespoke software development projects.

Qualifying software development activities

Software development activities likely to qualify will seek to advance overall knowledge or capacity in the field, not just the knowledge and capacity of the individual business. Here are three examples of projects that could fall within the scope of R&D tax credits:

  1. Software is being developed to tackle scientific or technological uncertainty, focusing on the difficulties and challenges that competent professionals in the field have yet to overcome. For this to succeed, the knowledge acquired must not simply have come from other freely available knowledge.
  2. Creating new products or systems, such as new software capability to improve the speed of a system that integrates different technologies.
  3. Improvements to existing systems, such as adapting bespoke systems for integration with new hardware or devices.

It’s important to emphasise that R&D tax credits aren’t designed to apply only to new software but also to improve existing software and overcome challenges. Plus, activities may still qualify even if part of the project has standard elements in it and isn’t R&D.

Expenditure that counts under R&D tax credits

Claims made under the scheme are based on specific expenditures to support innovation. This includes the direct costs of employing staff for the R&D project, as well as the cost of any externally provided staff. Expenditure on consumable items (such as energy) that have been part of the R&D process will also count. As do the costs associated with creating prototypes. Job roles, such as project managers, software engineers and senior management, could all be eligible for relief under the scheme.

R&D tax credits are ideally suited to software development companies and can generate significant rewards for investment in innovation. SPRK Capital are a leading provider of R&D tax credit loans, which advance the funding from your claim to you when needed.

Contact SPRK Capital today to apply for an R&D tax credit loan or to learn more about how we support innovation within UK businesses.