How R&D tax breaks can work brilliantly

Author: Laurence Bard

Categories: Business Strategy, Cash flow, Research, Research and development, Tax Planning, Technology
Tags: R&D, tax break
Laurence Bard: "You normally get a straightforward tax deduction for a business expense.  You spend a pound you get a tax deduction of one pound.  If you are, what can be actually almost quite a large company, instead of getting a one pound tax deduction you get a two pounds 25 pence tax deduction.  So you’re getting an extra 125% deduction coming off your tax bill.  So you know you might make profits before your extra R&D tax credit, with that uplift you start to breakeven or make losses.  And if you make losses and a lot of start-up companies do make losses here because they’re spending so much money on R&D, they can actually get a refund.  They can get a 25% refund.  Let’s say they spend £100 on R&D, and they lose at least £100 over the year, they’ll get a £25 refund for tax they’ve never even paid, they’ll get a subsidy of £25 from the revenue.  So that is a very ... again, for the innovative loss making developer that is a wonderful shot in the arm.  What they’re often very short of is cash funding.  They’re big on ideas and they’re big on how to spend the money, they’re not quite so good at getting it in, 25% subsidy is very useful."
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