Michelle Rodger: R&D can make the Revenue a nice little earner

Published on Saturday 26 June 2010 14:40

GROWTH is margin dependent. If you can't get cash – or debt – you will only grow your business at the rate of your margin. So how do you fund growth when there's no debt available?

Thanks to the HMRC (whoever thought I would say that?) there's another way; R&D tax credits.

If I said to you that there's potentially 540 million in free cash available right now, for businesses that do R&D, would you apply? Or more to the point, would you actually know that you are eligible?

Think R&D and what springs to mind? Eccentric professors? Spotty lab geeks? Beaker from the Muppets? Or do you see s, free cash, dropping into your business bank account, no strings attached, no interest payments, no directors' guarantees?

According to Brian Williamson, there are tens of thousands of pounds available for each eligible Scottish business; a sum not to be sniffed at, especially at a time when access to funding for growth is more than a little challenging.

But it comes down to a very simple question: do you really understand what R&D is? Could you be doing it every day of the week, blissfully unaware and missing out on HMRC R&D tax credits?

It's a technical question, one which most accountants wouldn't ask, nor would necessarily know your business well enough to give an accurate answer to.

Profitable businesses could receive just over 15 per cent of eligible expenditure, loss-making businesses can claim 24.5 per cent, and the best news is that companies can go back two financial years and resubmit tax computations.

According to Jumpstart director Brian Williamson, there are around 13,500 eligible SMEs (280,000 SMEs in Scotland; excluding those who aren't eligible and those in retail, for example, leaves 15,000, and assuming, generously, that 10 per cent of those are already claiming, you get 13,500) that could potentially claim an average of 40k each. This means there's a potential growth fund of 540m going unclaimed.

Williamson, who has been running companies at board level for 28 years, understands the importance of cash to fund growth.

Margin-driven growth is slow and limited. If you charge a 20 per cent gross margin on your product or service, then that's the rate at which your business will grow. Access to debt is virtually nonexistent. The banks still aren't lending, and those that are offer deals that are, quite frankly, too onerous to most business owners.

The R&D tax credit scheme is available to all industries and provides free cash that many MDs and chief executives do not understand and have actually been advised is not applicable to them. Jumpstart's specialist consultants look at business processes to establish whether your business is eligible, write a technical report showing why it's classed as R&D, and send this to HMRC. They have a 100 per cent success rate.

Williamson says this free funding is a great way to inject cash and relieve the day-to-day pressures that the current environment has thrust upon SMEs.

Craig Clark, founder and chief executive of Clyde Space, which designs and manufactures cube satellites for customers such as Nasa and the US Airforce, is clearly doing R&D but says his company was being advised by people who didn't understand the company and didn't understand the potential.

After working with the consultants at Jumpstart, Clyde Space received more than 60,000 from HMRC.

"This money has really helped strengthen our balance sheet at what is a really important investor stage," says Clark.

You wouldn't think that bakers would be amongst the top for R&D in the country. But it's true.

John Gall, is MD of Ayrshire-based Brownings Bakery. Creator of the famous "Killie Pie", they make and sell 10,000 of these a week alone.

Brownings gained 12,000 back from HMRC after claiming for research into new products. "It's cash I never thought I would have," says Gall, who didn't even know the funding was available. He has now invested the money in new machinery that will make savings of more than 30,000 a year and allow Gall to sell in markets from which he was previously excluded due to price.

Clearly the money available from the HMRC won't last forever. Williamson is urging all SMEs to get to the R&D watering hole before it dries up. Instead of spending 90 minutes watching the football this weekend, take time out to look into the R&D tax credit opportunity, and by the second half you could have turned round the cash profile of your company.