Cash. It’s what all high-growth businesses rely on as the fuel to power their trajectory.

I’ve often spoken about the delicate balance that management teams need to strike between chasing revenue, investment, grants and incentives, such as R&D Tax Credits. Frankly, it’s nearly impossible for a founder or small management team to do it all effectively, so prioritising what will yield the greatest benefit to the business is paramount.

One of the conundrums for innovative, earlier-stage businesses is understanding the interplay between claiming grants for R&D and making use of R&D Tax Credits.

Grants have the potential to fund a proof of concept, make key hires and essentially keep the lights on for earlier stage businesses. They can, however, also have lots of strings attached, where founders have a mandate to stick to strict rules around where the capital can be deployed and the timescales to do so. We have always recommended that our clients take full advantage of available grants, but to do so with their eyes open so that they don’t get caught up in a bureaucratic web. One of the issues that many have faced is that their decision to draw down on grants has hindered their pursuit of R&D Tax Credits.

First and foremost, the two are not mutually exclusive. Businesses of all shapes and sizes can make use of both but it tends to be the more R&D intensive companies that need to get the mix right. The world of R&D Tax Relief has become fairly confusing over the last two years, given the sheer rate of change for the scheme, and what some may have considered to be a “light touch” exercise now needs considerably more focus. However, this should not diminish what is still a hugely beneficial incentive to businesses.

Whilst the aforementioned changes to the scheme have added complexity, there are some positives to be taken, not least of all the ability to claim for both grants and tax credits in full. In previous years, the rates of R&D tax relief available for grant funded projects were often dramatically lower in comparison to those projects funded from either revenue, debt or private investment. However, for businesses with financial years beginning on or after 1^st April 2024, this is no longer the case. These organisations will now be able to make claims under the new single R&D scheme, whilst also drawing down on grants related to the same projects.

When added to the new ability from last year for companies to include costs such as cloud, data and pure mathematics in their calculations, there will now be an added value to those who avail of both grants and R&D Tax Credits, so things aren’t as bad as we perhaps feared they might be.