Cashflow is king, but where do I get it?

The UK furlough scheme is being wound down and will end in the Autumn. The Business Bounceback Loan Scheme is limited to 25% of your turnover, but for most of us, the damage to our income will be felt for four times as long. The CBILS is a minefield and up to 50% of applicants are being refused that finance.

So, how do we generate cash in this environment?

There is a Government scheme that pays companies without the need to spend any extra cash. The R&D scheme is a very generous opportunity that will generate benefits of up to 43.7% of qualifying expenditure to SMEs. You can surrender that for a cash injection of 14.5%. One of our clients received over ￡140,000, and it is tax free!!

The guidance is clear and the practice is well -established, having been introduced in Finance Act 2000.

Myths around R&D

1. You need to be "scientific" to do R&D. Wrong, most companies have some qualifying activity, as most of us engage in product or process improvement from time to time.
2. Subcontract work cannot be claimed. Again wrong. In fact, subcontractors themselves may be able to claim as well, so it is possible to claim twice for the same expenditure, a very rare occurrence in UK tax law.
3. We are loss-making, therefore a claim isn't worthwhile. The cash surrender option is available to loss making companies and may be even more valuable as a form of business funding.
4. HMRC will investigate us if we make a claim. This isn't true either. The claim should always be supported by a report, with the level of detail commensurate with he size of claim, Small claims can be made on your normal Corporation Tax Return with supporting documentation uploaded with it. There is also an advance assurance scheme to help you make an accurate claim. if you use that scheme, the first three years' claims will be "nodded through" if you stick to the parameters used in the assurance.

What kind of thing qualifies?

Any activity that aims to produce an advance in scientific or technological knowledge through the resolution of uncertainties. The activity does not have to be successful. Very often, human knowledge is advanced by eliminating potential options that are proven not to work. The DTI (now BEIS) guidelines issued back in 2004 refer to the old accounting standard SSAP13 for the underlying principles, and for an "seasoned accountant" like me, there is some comfort in knowing that my initial training is still partly relevant!!

Not all development activity will qualify. For example, many companies invest heavily in product development, but not all of the activity within that kind of project will qualify; the Guidelines are simply the first hurdle to overcome.

An obvious example is the market research done to identify the potential demand for a new product. this is not R&D in the tax sense of the word, and associated costs would have to be discounted from any claim even though it might be treated as R&D under accounting rules.

It is possible for subcontractors to claim R&D if their customer qualifies and the work they do was part of the qualifying project. The claim in this instance would be under the R&D Expenditure Credit ("RDEC" or "large company") scheme.

Other benefits

While the cash may be crucial, there are other benefits which may flow. An understanding of what qualifies will allow you to include this in your marketing pitch. Imagine quoting a client for some work and advising them that up to 43.7% of your price could be paid for by the Government. This would put you at a significant advantage over your competitors as most will not undercut you by over 40%! you could even offer to prepare your part of their report (for an extra fee of course).

And once the project is completed, if it would qualify to be patented, you or they could enjoy the 10% tax rate that is applied under the UK Patent Box scheme.

All in all it's a great scheme and most advisers will work on a no win, no fee basis, so you only pay if they are successful.

If you'd like to know more about the scheme, or any of the other tax reliefs currently available to UK businesses, do get in touch. I love this kind of conversation!!

Steve Carey