Tax credit loans are a new type of financial opportunity that a company can utilise in order to use the tax credit payments as collateral for a loan.
For businesses, this can add to the company’s cash flow to keep it healthy. It helps businesses to invest and accelerate their research and development, whether that’s hiring new staff or growing the company in general.
In this article, you’ll learn what these loans are and how you can go about getting them for your organisation.
What is an R&D Tax Credit Loan?
R&D Tax Credit is a government program that’s fairly new in its existence and it aims to encourage companies that are working in innovative fields. R&D stands for research and development, with many companies doing the extra work to make progress in areas that require more of both.
The R&D tax credit scheme is one that’s available to small to medium enterprises. Certain parameters have to be met in order to take advantage of these loans. The R&D tax credit you get can then be used as collateral to take out a loan.
How Can I Get an R&D Tax Credit Loan?
To get yourself an R&D loan, you’ll first need to pass the eligibility of receiving tax credit in the first place.
This includes doing the following:
- Spending money on R&D.
- Wait until the financial year comes to an end and prepare accounts.
- File the R&D tax credit claim using the CT600 form.
- Wait around a month or two for the R&D tax credits to be processed and paid out to you by HMRC.
The benefit of the loan is that it can typically be given before the claim amount lands in the bank account. It means you do not have to wait around for HMRC to process the claim. We all know how busy HMRC can get, which can often lead to delays in your claims.
What will I need to apply for an R&D tax credit loan?
There are many lenders for this type of loan. Once you have your tax credits, you can approach these lenders. They’ll be able to figure out how much your R&D tax credits are worth, and that can result in a cash advance payment that goes directly into your account. You can then use this to help your business grow.
To apply, you’ll fill out an application form with the selected lender, providing all the relevant business information, including a breakdown of your tax credits. The application is processed, and this cash advance is paid once you’ve submitted and processed your CT600 claim through HMRC.
How Do R&D Tax Credit Loans Work?
HMRC grants companies a tax deduction or, where no tax is incurred, a tax credit.
Here are the new details from 1 April 2024.
For those companies in the pre-profit stages, it comes in the form of a cash tax credit, which is helpful for those with high R&D investments that haven’t launched their products or services to the market yet.
Being able to save money on your research and development projects can help put more money into other projects in the pipeline. It helps fast-track those goals that your business has and allows you to get more done in the financial year than prior to this tax credit payment existing.
What is an R&D Tax Credit Loan Used for?
This loan can be used to help grow and drive your business forward. With the research and development that’s been done, that extra cash payment provided can help with various business work processes. From investing in more R&D, hiring staff, or purchasing equipment that’ll help with the company’s growth, the choice is yours.
The main benefit is that it can speed up the growth of your business with an extra injection of cash. All companies can benefit from an increased cash flow, and it can reduce the risk of any business going under, despite being faced with all manner of challenges along the way.
Who Are R&D Tax Credit Loans Suitable for?
The tax credit payment is most suitable for those companies within the industry sectors of science and technology, those that have or will become responsible for innovation, and the general advancement of these industries. However, it’s not just these industries that can opt-in for these loans.
The tax credits can be claimed as collateral against these loans to seek further research or development within their field. Regardless of the industry, there are plenty of innovative companies doing their bit to contribute to the future of their sector. The UK government wants to help support that innovation and harness it through the benefits of reducing costs.
Do I Qualify for an R&D Tax Credit Loan?
To be eligible for an R&D loan, you’ll need to meet certain criteria. You can find more information on this directly through HMRC.
However, in order for your business to qualify, your company must have done the following:
- You’ve looked for advancements in science and technology.
- You should have overcome a level of uncertainties, which has been done through research and development.
- Professionals in the field could not easily work out the solutions required.
If this adds up for your business, then chances are you can take full advantage of the services provided with this type of finance. So put your tax credit payments to good use and take out this affordable loan.
What Are the Costs of an R&D Tax Credit Loan?
The costs of this loan are fairly limited, with lenders mostly requiring an application fee payment in order to process the credit review process.
The lender will likely work with you or your accounts team to help calculate exactly how much your tax credit is worth. Typically, the tax credit will equate to around a third of the total money that has been spent on research and development.
It’s an affordable loan that has many benefits for your business. You may as well put every tax credit payment to good use and to help grow your business further. The loan amount you’ll receive will be around 70-75% of the expected credit.
How Long Does It Take to Get an R&D Tax Credit Loan?
The cash payment provided with this loan can often vary depending on several factors. The process is reliant mainly on how fast the CT600 form is processed and how quickly HMRC are with getting your claim made.
The lender also can influence how quickly you get the funds into your account. For some, it might be a matter of days, whereas, for others, it might take a lot longer. It’s worth doing your research and looking at which lenders are most likely to be the most effective for you.
What Are the Benefits of an R&D Tax Credit Loan?
There are a few benefits that come from these tax credits and how the loan can help your business develop and grow on an upwards trajectory. Here are just a few reasons to consider R&D loans:
Boosts growth
With advance funding, you can access funds within a week, depending on the lender you choose. This can be helpful because it can often take a couple of months to receive the tax credits from the HMRC.
Having advanced funding can help you continue growing the business without too much delay. It can also be helpful to have that funding available during crucial times within your business’s development.
With advanced funding, you can also think about how you can grow the business strategically and quickly. Many companies can struggle to make progress in their growth when they’re lacking funds. In fact, 29% of businesses will fail because they run out of cash.
Cash flow is a big one for most businesses, and there can often be several problems that companies run into when it comes to not receiving enough cash at the right time.
Holds onto equity
Holding onto your equity as a business is essential. With this development expenditure credit, all companies that utilise it can keep hold of their assets.
As a financial instrument, both small and medium-sized businesses can benefit from the advanced funding that this type of loan can provide.
Pre-agreed fixed costs
With lenders in advance funding, UK companies can rest assured that they’ll receive transparency in this agreement. You’ve got a better understanding of what you’re paying and what you’ll be receiving.
This transparency is great to encourage companies to make use of their tax credit with these types of loans.
The tax credit payments can help towards giving you plenty of extra cash for reinvesting into the business. The benefits of this loan are enough to convince any company to make use of any R&D tax credits that they may have available at the end of a financial year.
Who Offers R&D Tax Credit Loans?
There are lots of different lenders that offer this affordable loan. It’s always good to do your research to see who is available, but there are plenty of helpful suggestions that can get you started.
For the most part, you’ll find that many independent lenders will be willing to offer you a tax credit loan. Doing a quick Google search will help you discover the best options for your company.
There are lots of lenders out there that are more than happy to provide this loan in return for your tax credits. It’s a good idea to look at all the options and to review the advantages offered by each. That way, you can make an informed decision on who is the best choice for you and your business.
Final Thoughts
R&D tax credit loans are a great way to make your money go further and be rewarded for the work you contribute to your industry. It’s worth looking to see if this is something you’d be eligible for as a business going forward.
FAQs
What are R&D tax credits?
An R&D tax credit is a cash payment that HMRC provide for companies that are eligible. The companies include their claims for tax credits when they file their accounts at the end of the financial year with a CT600.
How do I qualify for an R&D tax credit?
In order to qualify for R&D tax credits, your company needs to meet specific criteria and have done certain things to get them.
This includes looking for an advance in science and technology, to have overcome uncertainty through R&D and in a way that can’t easily be worked out by a professional in that particular field.
How soon can I receive my R&D tax credit from HMRC?
Your R&D tax credits from HMRC will typically be with you within 28 days of your claim being submitted. However, that doesn’t mean the ten working days it can take to land in your account. Ultimately, it may take just over a month to receive the tax credit payments.