Part of the challenges that can arise from understanding the true value of R&D tax relief claims can centre around a lack of understanding of who they are supposed to help.
In some conversations with innovative businesses, the competent professionals responsible for working on the advances may not be fully involved in the discussions.
While it might be clear to the R&D team why extra funding is important, it is sometimes less apparent to directors why the process of claiming R&D tax reliefs is worth it.
It is important to take the time to reflect on the ways that R&D tax reliefs benefit the innovative business as a whole so that directors can feel emboldened to keep making claims.
Do directors benefit from R&D tax relief claims?
The increased level of scrutiny that HMRC are applying to R&D tax relief claims is having the desired effect of making innovative businesses think twice before approaching it.
If ineligible companies are being put off, then that is a good thing, but the risk comes when legitimate claims are not submitted due to risk aversion or a poor understanding of the system.
For directors, this can mean that the innovative business they run miss out on revenues for growth and future achievements.
If a director wants to understand the true benefit of an R&D tax relief claim and decide whether it is worth it, they have to consider how they want to fund innovation.
If a business does not make use of R&D tax reliefs, it will need to source the revenue from other areas.
Sometimes, grants do exist to help fuel innovation, but these are often sector-specific, meaning that some niche sectors or businesses may miss out.
Too commonly, innovation was dependent on the project, resulting in a saleable product that could retroactively pay for its own development.
This is problematic when the project fails and there is no commercially viable end result.
For businesses that conduct R&D on behalf of others, a change in direction could see resources sunk into something that is no longer wanted or needed.
It is possible for businesses in these positions to not survive or to decide that R&D is not worth the financial risk.
As such, R&D tax reliefs can be a helpful injection of funds that arrives a lot sooner than profits would.
Are there rules on how to spend R&D tax reliefs?
In spirit, if not in letter, R&D tax reliefs should be used to fund investment.
It goes against the idea of the scheme if directors pocket the cash or use it to go to the pub for an extended lunch break.
However, the fact that money is reclaimed on the R&D can result in an ouroboros of innovation and funding as they feed into each other.
This saves the company money in the long run by ensuring that money made from daily activities or by selling products can be used in other areas.
Lightening the financial burden of R&D means that businesses can strive with more confidence in the work that they do.
As R&D tax consultants, we are on hand to help accountants and innovative businesses understand the value of R&D tax reliefs.
As economic pressures grow across the board, finding additional funds to pave the way for innovation is essential.
We can help you submit fully compliant, maximised R&D tax relief claims so that innovation is not held back by financial concerns.
