Research and development for products, processes, or services is an important aspect of every organization. In this article, we will dig deeper into this topic to try and understand different aspects that come with research and development finance.
We expect to enlighten you on how research and development finance is important for you, the different types of opportunities of funding available for you and your company, and also find out what the majority of the people who offer to fund consider before investing in you. We created this article to keep you more knowledgeable and guide you to ensure you get the most suitable type of funding for your company.
What is Research and Development?
Research can be described as the activities that firms, organizations, or companies participate to acquire new knowledge. The knowledge may have different uses for the organizations. It can be used to develop new products or services or to improve the current products and services they are offering.
Development on the other hand refers to the use of the information acquired during research for production or improvement of the current processes. This is where new ideas and innovations are brought to life. Therefore, when combined, research and development can be described as the acquiring of new knowledge with the sole purpose of innovation of new ideas or the improvement of the current products, system, or services for your use or to sell.
How can you finance your Research and Development?
Research and development are very expensive since it involves a lot of expenditure. There are several avenues you can use to acquire the financial support you need to speed up the R&D process and ensure it is successful. Read along to find out the ways to finance your R&D projects,
Research and development tax credit finance
An R&D tax credit loan refers to a new financial service that involves the use of a company’s future research and development tax credit payments as collateral for a loan to aid in the funding. This method is very favorable for the majority of organizations in the United Kingdom. However, it is very slow and comes with its range of challenges. For your organization to get the loan it qualifies for, it has to meet the following requirements:
- It has to spend money on research and development in the current financial year
- It has to wait for the company’s financial year to end for it to get the loan
- To prepare the needed accounts
- As part of the CT600 form, it has to include the R&D tax credit claim
- It has to wait for between one and a half months to three months for the research and development tax credit to be processed and paid out by the HMRC
- The company only has access to the R&D loan funds only during the year the R&D spending occurs. Mostly, it happens way before the HMRC payment date.
Therefore, in summary, the R&D tax credit loan happens as below,
You spend money and research and development as you planned in the current financial year
Draw down funds as you approach the middle of your financial year and moving forward
Increase your spending on the R&D as you approach and up to the end of the year
After you use the funds earlier, net a larger research and development credit at the end of your financial year.
An R&D loan can also be looked at as factoring in for any expected invoices that come from the government and in this case of the United Kingdom, we are referring to the RMS. Qualifying for the UK R&D tax credit is the first and most important step towards being able to access the R&D tax credit loan.
All over the world tax credit loans for funding different projects for organizations are very common. Therefore, this type of financial funding is not only limited to the United Kingdom. Several governments have become proactive to ensure their citizens grow technologically and discover new knowledge for innovation in their respective industries.
A few examples of similar initiatives are R&D incentive loans in Australia and the SR&ED loans in Canada as well. However, these mentioned are just a few of the many available in other countries.
Who is eligible for this type of funding?
The R&D tax credit incentive allows claimable costs such as, direct staff costs, software, travel expenses that were incurred in the process of the R&D, subcontracted expenses, and consumables that were part of the research and development process.
Infrastructure costs are not eligible for the R&D tax credit. This is because the costs are not directly related to research and development.
Even though the infrastructure is used for research and development, it is also used majorly by the non-R&D sector making it non-eligible. Only costs that are directly involved with R&D are included. The costs also include other costs such as rent, utilities, hosting capital expenditure, or any other costs that were useful during the innovation process. The tax credit is available for small and medium enterprises (SMEs).
This implies for companies with less than 500 staff and with a turnover of less than 100 million or a balance sheet of under 86 million. Companies that prove to be larger than SMEs can still get the R&D tax credit but at more restrictive parameters.
Clearly for any growth of a firm or industry research and development finance is a very important aspect. The funding discussed above is just one of the ways for you to not limit yourself when it comes to innovation and improvement of your company in general. We also appreciate growth and improvement and thus the reason to come up with this article and ensure that you, our reader get as much knowledge as possible from here.
We hope that you enjoyed the article, found it very informative, and even learned a thing or two from it. We appreciate you for taking your time to read the article and welcome any comments or suggestions below. Also, if you found the article interesting and you would like to share the knowledge do not hesitate to share it with your friends.