Why cash flow is the hidden risk of successful grants and R&D tax credit applications

Ignore the myths, grants and R&D tax credits can work together. Just beware of leaving your clients short of working capital.

At Swoop, we love working with advisors to help your business clients access all the help they need to thrive. That’s why we’re always on the lookout for new and innovative ways to save your clients money.

We see too many businesses miss out on the benefits of grants and Research & Development tax credits – and feel that as an Advisor, you’re in a great position to make sure your clients don’t miss these opportunities.

But what’s the difference between the two?

Grants can be used to offset the costs of specific upcoming projects, and they’re typically awarded to businesses that are working on innovative new products or services. R&D tax credits, on the other hand, are available to a wider range of businesses that carry out research and development, regardless of whether the results are commercially successful. In other words, the bigger grants are for upcoming, innovative projects that have not yet been carried out, whereas R&D is to be claimed retrospectively.

Business owners may find they qualify for either a grant or an R&D tax credit; even better, they may qualify for both.

This is good news for those who believe they have to make a choice between grants and R&D tax credits as many businesses can do both: businesses may use a grant to offset the costs of qualifying R&D expenses, which can then be further reduced by R&D tax credits.

Do you need to explain grants and R&D tax credits to your clients? You might find it useful to forward these links to them:

Find out more about grants

Find out more about R&D tax credits

As an accountant, you can help your clients maximize their eligibility for grants and R&D tax credits. By understanding how these programs work, you can help your clients save money and invest in their future growth.

How can you get both?

If you have won a grant for a large, innovative project, some of the terms and wording in these applications is key to how much you can benefit from the R&D tax relief schemes.

An important term to be aware of when looking at the two is the UK ‘Subsidy Control’, also known as State aid pre-Brexit. The reason the subsidy control is important is, that if a company has been awarded a grant toward a project, which has been classified as notified state aid, they can not claim under the more lucrative SME Scheme for that same project. In this scenario, businesses that receive a “project specific grant” will have to claim back tax via the RDEC scheme, which is less beneficial to an SME.

If the grant on the other hand is classified as non-state aid, which several EU funding schemes are, a business’ R&D claim isn’t affected at all. They can claim the tax relief via the SME Scheme for the project, and get a higher tax relief.

If they are to benefit from the RDEC scheme, there is a useful initiative they can take advantage of to claim back the highest possible tax relief:

• Ensure that instead of a Ltd company contractor (who is not on the company’s payroll), the business uses an individual, a partnership made up of individuals, or an approved body (a charity, an institution of higher education such as a university, a scientific research organisation or a health service body) for any of their project work. As long as the subcontractors are from the approved list, 100% of their cost can be claimed as allowable R&D expenditure.

While this can all be great news for a business, you need to make sure that clients remain prudent around cashflow. Grants and R&D tax credits are paid in arrears; that is, clients will get a partial refund on money spent when they hit certain milestones, rather than capital upfront. Grants almost always have to be matched with other funding sources which can mean a company has to borrow to cover the purchases stipulated in the grant agreement.

If your client can’t meet these upfront costs, there are options for getting advance funding on successful grant applications.

Advisors can help clients take advantage of grants and R&D tax credits by:

• Understanding the eligibility requirements for each program.
• Helping your clients gather the necessary documentation to apply for grants and R&D tax credits.
• Providing ongoing support and guidance throughout the process, especially around your client’s cash flow management as this is often where businesses over reach.

By helping your clients maximize their eligibility for grants and R&D tax credits, you can help them save money, invest in their future growth, and become more competitive in the marketplace.

Swoop makes it easier for you to help your clients successfully apply for grant funding with our innovative grant finder tools.

Swoop will be exhibiting at Accountex Summit Manchester on the 19th September 2023 on stand D6.

You can register for a free ticket here.

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