6 Reasons Why R&D Is So Beneficial For SMEs

Research and development (R&D) is critical to a company's success. The UK government believes it’s important for keeping UK businesses competitive and at the cutting-edge of research and development. Helping UK startups, companies and businesses get money back for their eligible R&D spend with tax credits is a key initiatives to support research and development.

R&D tax credits are not just for large enterprises. Small businesses and startups get large amounts of cash back and tax credits when they spend on coders, servers and related R&D areas. 

SMEs and startups get up to 33% of what they spend on R&D back from the UK government as cash or a tax credit - but they still have to spend real funds to get the partial refund or tax credit. There must be compelling reasons to do the research and development activities in the first place. In our experience, these are the six top reasons SMEs and startups conduct R&D activities:

  1. To increase revenue
  2. To get a competitive advantage over other providers
  3. To collaborate with partners, universities and other technology players
  4. To improve their reputation as innovators to attract partners, employees or grants
  5. Easier fundraising
  6. And of course...because R&D tax credits make every pound in eligible R&D tax credit spend go up to 33% further

1. Increased Revenue

Successful R&D projects that result in new and better products, processes, and services can have a positive financial impact on your startup or company. Unique products and services developed as part of R&D projects can boost sales across the areas of your company the innovation can help..

2. Competitive Advantage

Research & Development by its nature is about developing something new and novel that isn’t available elsewhere and isn’t obvious to others. R&D isn’t limited to you making something completely new. You can also make improvements to prior iterations. In either case, Research and development should help your company stand out from other solutions in the market. 

3. Opportunities for Collaboration

R&D provides you opportunities for collaboration with other teams, corporations, or universities. In other words, you can both benefit from previous research and development paid for by others, and get a cash refund or tax credit for the new work you do in the area. Many corporations and universities explicitly seek to transfer their skills and information to you for further research and development. They will often even provide you required specialised research facilities and outside experts. The fresh concepts and ideas that come out of these collaborations that might otherwise be outside your company's reach.

4. Reputational Benefits

R&D helps you develop a reputation for being innovative and creative. Well recognized and respected partners also lend you reputational benefits. These benefits can pay off in easier hiring, better partnership opportunities and knock-on benefits in further grants, monetary support and non-monetary support.

You’ll need to spread the word, so making your R&D innovation edge clear in your PR, marketing and job descriptions is essential to boosting your reputation.

5. It’s easier to fundraise

Research and development improves a company’s ability to raise funds from investors, VCs, family offices, angels and other institutional funders. Investors in startups, particularly in earlier stage rounds, are looking for a strong signal that you will stand out and differentiate your product from others. Technical innovation is one of the strong signals they look at to decide whether your investment story is worth funding. 

6. R&D Tax Relief

Cash is the lifebloom of any company, startup or SME. R&D activities tend to be more capital efficient than others (though not always) because you can get up to 33% of your spending back in the form of a cash refund or tax credit. Of course, HMRC and the UK government benefit as well. R&D tax credits are a government incentive meant to encourage UK businesses to engage in innovation. As mentioned, you can apply R&D tax relief to lowering your company's tax payment or choose to receive a tax credit in the form of a cash payment from HM Revenue and Customs. Both have roughly equal financial benefit, the one you choose will broadly depend on whether you’re making a profile or loss. It's important to plan ahead so you engage in qualifying R&D expenses that are eligible for tax relief.

Do you need assistance filing an R&D tax claim?

Our specialised R&D tax consultants can help if you are a UK company that has questions or needs advice about claiming R&D tax credits. F6S will help you identify additional costs that are eligible for cash back or tax relief, as well as ensure that your claim is filed correctly and that you get paid as promptly as possible.

You can also use our R&D tax credits calculator to determine how much R&D tax relief you might be able to claim from HMRC.

December 17, 2021
F6S can help you with your R&D Claim