How tax incentives can help businesses improve cash flow.

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Iain Butler

+44 (0)20 7556 1343
butleri@buzzacott.co.uk
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The latest London Chamber of Commerce & Industry survey revealed that for smaller businesses the cash flow balance has fallen 9 points to -14%. As a nation, we have an intractable productivity gap and investment is critical to resolving this because improved productivity is a tonic for cash flow issues.

Most larger businesses are aware of this whereas smaller businesses, which are generally far more risk averse, balk at investing their hard-earned cash. So how do we encourage smaller businesses to risk whittling away more of their cash to achieve a better cash flow situation in future? 

The incentives available

There are multiple cash incentives available to business owners, which have been developed specifically to encourage investment in Britain’s businesses. This helps with development and growth goals, benefiting the overall business landscape.

If your investment involves development or innovation then it may be possible to submit an R&D tax credit claim. The scheme for small and medium sized businesses (SMEs) is generous in providing cashback of up to 33% of the qualifying expenditure. SMEs can also access a range of grants and innovation loans from Government bodies, such as Innovate UK. However, this funding will impact the R&D claim benefit received and without careful planning, it is possible that a company may fall foul of the state aid regulations.  

If your investment is capital in nature, you could claim more of the expenditure under annual investment allowances (AIAs). This scheme applies to a wider range of investments and has been expanded to encourage companies to invest in the UK post-Brexit. The big drawback is that this incentive is only of benefit when a business is tax paying and many growing SMEs are not able to access the full benefit of this incentive for many years. 

Planning investment

Businesses often wait until they have spent the money before considering making an R&D tax credit claim. Our advice is to invest time in the budgeting phase to determine whether your investment would qualify for AIAs, R&D or grant support. This will involve determining whether the work qualifies, which can be tricky for many businesses, so we recommend partaking in an R&D claim review before finalising your budget. 

Your first claim will be submitted in the tax return for the accounting period when you start incurring the expenditure and HMRC will aim to repay any SME cash credit within 28 days. If you are looking to access the money earlier, there are R&D loans available that can bridge the time between incurring expenditure and receiving the cash. 

Key considerations

A savvy business owner should recognise that cash incentives can be pumped back into the business to improve essentials such as IT, hardware, manufacturing and even buildings – all of which can help increase productivity and overall performance. These incentives should be factored into your value for money exercise, as they may be enough to push up the return on investment and allow the project to progress. With Brexit looming and uncertainty across the board, now is the time for business owners to fully understand the potential of tax incentives to help secure a healthy future during tumultuous times.

This article was first published in London Business Matters.

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