06 Mar 2015

Insider Magazine March 2015

Sam Stephens

TBAT is a specialist innovation consultancy operating out of dedicated offices in Castle Donington, Derbyshire. With a nationwide client base, TBAT offers consultancy and expertise in the securing of R&D funding from UK and European Grant Awarding bodies, helping companies fully utilise the UK R&D Tax credit regime, undertake product and market due diligence, project management and IP audits. With an honest, straight forward and transparent approach TBAT has an enviable success rate in the industry which has enabled it to grow sustainably by 30% year on year for the last 4 years.

The UK runs two R&D tax credit systems – one for large companies (over 500 people) and one for those employing less than 500.

In the simplest terms, the large company scheme offers a “below the line” tax reduction of some 7p for every £1 spent on research and development activities. Although we are in now in a transition period, from April 2016 it will mandatory for large companies to present their R&D tax claim “above the line” against a slightly more generous 11% and with a corporation tax rate by then of 20%, is worth nearly 9p in the £1 spend on R&D. For loss making large companies this can now generate a payable credit.

For SME’s (in HMRC eyes this is companies up to 500 employees) the R&D Tax regime is even more beneficial. If you make profits, for every £1 you spend on R&D activity, you can reduce your tax bill by 26p, if you make a loss, a payable credit of 33.3p in the £1 is payable.

Although the above values have changed over time, a company can go back up to 3 years. Where too much tax has been paid HMRC will refund this!

TBAT has successfully worked with companies from many sectors to claim R&D tax credits. Many of these thought they would be unable to do so: their accountant said it wasn’t possible, they didn’t consider their activities as being eligible, it was far too difficult etc. Examples include; product design companies, web developers, tooling companies and asset management companies to name but a few. We are happy to discuss, free of charge, the potential in your company to make an R&D claim.

There are many ways for companies to fund innovation. In the very early stages, the traditional friends, fools and family was key way forward. However, in recent years, crowd funding has been a fantastic way of getting ideas off the ground, with many investors leveraging their investment against initial releases of the product. Generating a positive user group early on and utilising social media many new start companies have seen rapid growth and fast product adoption.

The UK government has developed a strong support strategy for innovation in the UK and rewards companies in three key stages of the R&D process. They pump prime innovation through an extensive range of R&D grants ranging from just a few £000’s to multiple millions. They then enable the annual rewarding of companies that have undertaken R&D through the R&D tax credit regime above. Finally, if a patent is granted against a new product or concept, any commercial use of that patent in a product can reduce the corporation tax rate on profits by 10%. This is a great scheme for companies looking to develop technology and then licence it, as any licencee can then benefit from the reduced tax rate.

Despite the last 5 years of financial difficulties, the UK government has continued to invest more money in the grants available to companies and to improve the R&D tax regime as well as introducing the Patent Box concept. Many companies are still not aware how to effectively fund innovation and still use hard won cash reserves and profits. An example: a £2m turnover company delivering 10% net profit spending £200k a year on R&D. TBAT secured a £200k grant to fund additional R&D in the company. To fund this new level of R&D would require the company to double their entire effort and turnover to generate the necessary surplus. Grants do come with a level of bureaucracy, but it is still far less effort than doubling your business!!

HMRC figures show only 28,500 SME’s have applied for R&D tax credits – about 10% of the +2m VAT registered businesses. It is massively under accessed by companies. TBAT has a fantastic record of finding the innovation tucked away in companies and maximising R&D Tax claims. The same poor level of uptake on companies accessing grants is true. Although some funding calls may be oversubscribed, they are oversubscribed with low quality applications. Companies who have great ideas, with a well written application have a fine chance of securing funding. TBAT excel in this field.

The East Midlands has strong sectors in the areas where the government wants to invest in R&D – Transport, Creative Industries, Food and Drink, Bio-Medical and Materials. Some companies are excellent at applying for and securing considerable amounts of R&D grant funding and Tax credits whilst others have much to learn. Using an expert to assist in securing either funding greatly increases the chances of success. However, choose wisely! Look for honesty and transparency, make sure it is your project which the company needs that is being funded, not a project that the expert says will get funded. Be aware of experts who insist on being an integral part of the delivery post grant award. It is your project and you should use support you know and trust. Always consider a risk and reward fee structure as it shows commitment and belief from both parties. Consider that the national success rate for securing R&D funding is between 15 – 18%, TBAT has a success rate over 80%.

The money is out there to pump prime innovation in the East Midlands, the money is out there to reward companies who invest in innovation in the East Midlands and the tax incentives are out there for those who successfully exploit innovation in the East Midlands.

For a free, no-nonsense pragmatic chat about opportunities for your business, please contact Sam Stephens – Innovation Director at TBAT Innovation: sams@tbat.co.uk

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