R&D Grants and tax Credits – Incentives and funding for SMEs

In recent times I have helped one client with R&D tax credit claims worth in excess of £600k over three years. This shows that the amounts of funding can be significant and very helpful.

I have been involved in both the application for grants as well as the subsequent ongoing claims made to recover money from the funder.

Applying for a grant involves a collaborative approach between, amongst others, Finance, Research and Commercial. Typically the grant provider wants to understand the ideas behind the grant, together with the anticipated costs and the timeframes involved. Putting together a professional package when applying for the grant makes a real difference between success and failure.

Grants and the tax receipt from R&D credits are a great way for companies performing Research and Development to obtain funding and support.

Grants can be obtained from a variety of sources: international, national and local. It is worth noting that they typically don’t pay any money out upfront; and that the amount awarded is not normally 100% of the costs claimed. Instead the company has to bear a small percentage – usually 10% to 20%. Grant claims are only paid out once the company has actually paid the money out, be it to a third party supplier or to an employee.

Grants

The UK government provides grants through the auspices of UKRI (UK Research and Initiative Council) and, in particular, Innovate UK. At the following website specific grants available at the current time can be found https://www.ukri.org/opportunity/.

The EU operates a range of grants, details of which can be found here - https://europa.eu/european-union/about-eu/funding-grants_en. Having a European subsidiary may enable access to these funds even now.

Once a grant has been obtained, costs should be closely monitored and time records kept by employees, so that those working on the work related to the grant can have all their costs – payroll and employer taxes and pensions – as well as any specific travel costs reclaimed accurately.

Reclaims are put together quarterly by the company concerned and then submitted to the grant awarder, who pays out based on that claim, and how it compares to the initial submission supplied.

Sometimes a grant manager will be allocated to your grant and they will have quarterly meetings to discuss how the project is progressing compared to the initial application, both in terms of costs and also in terms of the expected technical outcomes.

Annually, and with the final claim, an audit is performed by an independent accountant to ensure that the claim amount submitted has been put together accurately and appropriately. Only once this has been received by the awarding body will they pay out.

Having good record keeping in place to identify the relevant costs is a must to ensure successful claims of monies used.

R&D Tax Credits from HMRC

In many ways the same applies for claims for R&D Tax Credits from HMRC. HMRC have provided an overview here of what can qualify for R&D tax credits https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief.

Whilst these credits can be used to offset against profits, they can also be reclaimed as a repayment, which in early stage companies with little or no sales or profits allows a much needed injection of funds.

Again, good recordkeeping to identify costs applicable to R&D projects, including employee costs and time, are essential in making a claim. R&D tax credits can be a complicated area and will often need a collaborative approach between various internal departments as well as an external specialist.

I have acted as an effective bridge between all of these, and have recently worked with one client where we have made recoveries in excess of £200k for each of the last three tax years.

In both of the above situations, it is worth noting that these funds do not dilute the existing shareholders’ shareholdings but DO provide additional funds into the business.