Reclaiming VAT on cars has always been difficult. HMRC always argued that if a car was not “wholly and exclusively” for the business, VAT could not be reclaimed. In essence, if a company car was used to travel 1 non-business mile, a reclaim of VAT was not possible. Proving that a vehicle had not ever been used privately was difficult. HMRC has, understandably, never documented what evidence it would require in to allow such a reclaim. Whilst this still remains the case, a number of recent cases have set the roadmap to allow for VAT reclaims.
One issue these cases addressed was around the intent to use a company vehicle for personal journeys. It’s next to impossible to prove personal use didn’t/won’t happen. However, if the company takes the appropriate steps, it can show that it’s intent is that the car will only be used for business purposes. If it can do that, a reclaim of input VAT should be allowed. With £5,000 of VAT to reclaim on a £30,000 car, it’s easy to see why taxpayers are keen to reclaim and HMRC are intent on blocking them. So, what do you need to do to reclaim?
1. Insure the car for business use only
If you only insure a vehicle for business use this is a pretty strong indicator that you only intend to use it for business. Private use would leave the company directly liable for any claim arising from a private journey. As such, it can be inferred the car is intended for business use only.
2. Instruct all potential users of the car that it is to be used for business purposes only
By informing all staff that the vehicle is for business use only it goes further to back up the intent of its use. Get employees to counter sign a declaration that they agree to the restriction of use of the vehicle.
3. Insert a stipulation in employment contracts
Further enforce point two by including a clause in the contract of employment that employees agree not to use company cars for private use. They should also agree to return pool cars to the business premises at night. In 2016, the first tier tribunal, in the case of Jane Barton, sided with the taxpayer in reclaiming VAT even though her business premises was at her home address. So even though the car was kept at her home, this also doubled as her business address an was deemed acceptable.
4. Get the paperwork right
As well as employee declarations and amendments to employment contract, a detailed mileage log is invaluable to a successful reclaim of VAT. Again, a clause could be inserted in the employment contract that employees agree to log all journeys in a mileage log. Also consider having the directors pass a board resolution restricting the use of the vehicle to business use only.
If the above points are followed, a reclaim of VAT should be allowed. It’s worth noting however, some taxpayers have won their case in the First Tier Tribunal without hitting all the above points. In 2016, Zone Contractors Ltd were allowed their reclaim of VAT even though there were no restriction to the insurance policy. There were also concerns over the credibility of the mileage logs. However, the legal and physical restrictions (stipulation in the employment contracts and requiring the vehicle to be stored at business premises overnight) were enough to side with the taxpayer.
Each case is very much decided on its own merits. However, if all the above steps are taken, there should be little or no room for HMRC to argue that the car is not intended for business purposes.
Tech startups are a personal passion of mine. I love the new. And I love to see fledgling businesses with an idea for something new going through the process of bringing that to market. For all the excitement that comes with discovering an new piece of kit or a new app and figuring out how to use it and what it does, it’s important at times to step back and become the pragmatist at times. Often, the tech startup founders have the same passion and excitement for their creation as I initially have. And just as often, they have got caught up in this excitement and haven’t given any consideration to the question of “how do we turn this product in to a business?”.
To that end, here’s my run down of the top 5 tips for getting your tech startup off the ground.
This is number one for a reason. In fact, it should be number 1, 2 and 3. An ever increasing number of tech startups build their business on the foundation of an intangible product – software, apps, services and know-how. The most early stage startups won’t even have this much. They will just have an idea. On the back of this idea, they’re hoping that some angel investor will come in and write a big cheque that will then let them go and build this idea. This very rarely happens, but where it does the problem often comes after the money has been spent. The business now has a killer app or piece of software or platform…. but no idea how to make money from it.
In today’s market, monetising software as a service or apps can be difficult. It’s an ultra crowded marketplace (especially if your app is a photo app with filters or a new P2P messaging app). So even if you do decide to go down the route of charging £0.99 per download, there’s no guarantee anyone is going to download your app.
As far as monetisation goes there are three things to remember:
Having and idea does not equal have a business
Having a product does not equal having a business
Having a pricing structure around your product or idea does not equal having a business
You know what equals having a business? Having money coming in. That’s it. That’s all that counts.
So please, if you take one thing from this article it should be this – spend an enormous amount of time figuring out how you are going to get people to give your startup money in return for your product. And once you figure it out, ask yourself is it achievable. It’s ok to say we’re going to charge £10/month for people to use your graphic design tool or £99 for a Bluetooth coffee machine but will people actually pay for it?
This one should go without saying. When your starting out you need to scrutinise every penny. If all you have is £1,000 ask yourself – what is the best way to spend this £1,000? The answer probably isn’t on an executive leather chair with a heated seat. You don’t need it. What you do need is a web developer to build your website if that’s how you’re going to sell your product. What you do need is a digital marketing budget if social is where you think your first 100 customers are coming from. What you do need is more product development if customer feedback tells you it has flaws.
Startups need to be ruthless with their spending. Whatever amount of money you are going to spend on something, ask yourself – if I had to write a cheque for 100 x that amount, would I be comfortable doing it. If you wouldn’t be, it’s not essential to you getting your business where you need it to be.
I was always going to say this. Any accountant would, but for good reason. In fact, for a number of good reasons. The first goes back to the passion that startups have for their product. This passion, whilst pretty much a prerequisite, can also stop you from seeing the facts as they stand. You may love your product and it’s branding and may have grand ideas of changing the world. That’s great. I wouldn’t expect anything less from you. But if the model is broken, this passion and energy is being wasted. If you’re burning through money twice as quickly as your getting it in or if you’ve costed your product at a margin that only gets you to break-even after 10,000 unit sales, you’re going out of business, and soon.
Another reason for keeping your books in order is that, well, you have to. If you’re operating through a limited company in particular, you need to be keeping sufficient records. HMRC will also take a poor view if they decide to visit you and you haven’t got sufficient records of money in and out.
Finally, keeping up to date with your accounts also instills an much better business mindset in entrepreneurs. It grounds them in the fundamental principle of being in business – making money. Aside from keeping on top of profits, it’s also useful to keep on top of how your assets and liabilities are moving in relation to each other. If debtors and creditors are increasing exponentially, the good news is you product or service has a market. The bad news is your startup is at risk of over-trading if you don’t find a means of properly financing the business.
This might seem counter intuitive but I believe it is important to figure out as soon as possible how you intend to exit your startup. The fact is, you can’t run your business in to infinity. Whether the plan is to sell up to the highest bidder at the earliest opportunity, pass it on to the kids or make as much money in 3 years as possible then wind it down, understanding this goal from day one gives you the blueprint for how you intend to run your business. Once you have your end goal figured out, all your actions should then map to achieving this.
As with any business, for your startup to really succeed you need to be the expert. You need to know everything about the sector you’re in; how it works, what it tastes like, who matters in that sector and how your product or service fits in to that sector. This goes back to monetisation. If you know what does and does not work in that market, you’re much better placed to decide whether your business can be successful there.
You also need to be crystal clear about your customers. Who are they, why do they need what you’ve got and are they willing to pay to get it? You should also understand that jut because your product may be better and cheaper than a competitors, customers won’t automatically flock to you. This goes to brand. Brand matters.
You may have developed a pair of smart running shoes that link to a smart phone app to tell you if your running technique and posture is off and how to adjust and measures your heat rate, speed and distance. Great. I’d buy that. But I’m a geek and a focus group of one. The market? They’ll ignore you and continue to buy Nike, Adidas and Reebok. Because they have the brand clout. People buy these brands without even thinking about it. Without even knowing why they’re buying them. It doesn’t matter that your product is better, cheaper, smarter, more environmentally friendly, will make you live longer and grow taller and make you more attractive to the opposite sex. So understand that the best move here mightn’t be taking on the big boys but targeting the niche and adjusting.
That’s a crude and fictitious example but shows how understanding your market can totally redirect where your business will goes in comparison to where you thought it would go.
In the past couple of years, the local business communities in Ireland have ramped up their engagement with other businesses on Twitter. There are numerous hashtags for numerous locations around the country where, for one hour a week, businesses get together online and throw around stories, publicise their business and offer support, and indeed entertainment, to other businesses in their area.
I have dabbled in these groups in the past to some extent without really committing. More recently however I decided to get more involved in my own local group – #NewryHour. Every Tuesday from 9-10pm, I get on Twitter and listen, ask questions and (hopefully) offer some value and help to the community.
Twitter comes in to its own in these groups I think. It has always been the biggest open cocktail party on the internet; you can literally go on and talk to anyone that’s using it. But these groups really help to narrow the focus for people.
As a business, you can gain a lot from being “at the party”. Whether it’s insights, leads, opportunities to connect and collaborate with other business or members of the community – it’s all possible in these forums.
So, with all this opportunity available to us, what do I hope to gain from using these groups?
I’m not there to gain. I’m there to give.
I like to think I know myself pretty well. I know where I can offer value to people and where I can’t. If you need help putting up a shelf or baking bread, I’m not your man. I’m really, really shit at that stuff. If I got involved in either of those activities, death or injury are both likely outcomes.
Now, if you need advise on ways to finance your business, to save tax, to increase your margins, to sell or buy a business, to manage your VAT and payroll – that’s right up my street. Some people get in to business because they’re great sales people, great at making things, great artists. The finance is something people pick up to some degree as they go along. But they seldom become experts in it to the extent that they are when it comes to building an app or building a house. And that’s fine; it’s not practical to do that. That’s the very reason accountants exist. We are the support team.
So, I go on to #NewryHour to offer support. To offer an opinion (or a second opinion). To offer help, in whatever form that may take – an introduction, a chat, a coffee, a recommendation, whatever. Just to help. Business is tough. Anyone that tells you any different is a liar. So if I can help in 140 characters on Twitter or in 30 minutes on the phone afterwards, I’m happy to do so.
I’m increasingly coming to the conclusion that we all have to give more than we receive. So I’m giving now because in 6 months or 6 days I might need help. Call it karma, call it not being an asshole, I think it’s just part of life and living in a community.
What I’ve found surprising though, is just how much community you can find in a simple hashtag.
#NewryHour happens every Tuesday between 9-10pm. Everyone is welcome. It’s not just about businesses, it’s about the whole community – schools, charities, groups – everyone can get involved. So please do. Tweet #NewryHour
From the 1st April, the National Minimum Wage for employees aged 25 or over increases from £6.70 per hour (the current rate for all employees aged 21 or over) to £7.20 per hour to fall in line with the Living Wage.
The government plans to increase this amount year on year to bring the minimum hourly rate for those over 25 to £9 per hour by 2020.
Whilst this is good news for low paid employees, the cost to smaller business will be significant – around £1,200 more per employee per year once National Insurance contributions and Auto-Enrolment pension contributions are added in. With what is effectively a new minimum wage bracket being introduced, the gap between the minimum wage for employees aged between 18 and 25 is now £1.90 per hour – almost £4,000 per year for a full time employee.
To this end, I wouldn’t be surprised to see a significant decrease in unemployment for people under 25, as employees try to manage their costs by hiring younger workers ahead of the more expensive, older ones.
To lessen the impact on employers, the government are increasing the Employment Allowance on 6th April from £2,000 to £3,000. So the first £3,000 of employers National Insurance incurred in the 2016/17 tax year doesn’t need to be paid over to HM Revenue & Customs. While this is welcome, it may mean very little to employers who have more than one employee going up to the new £7.20 rate.
It’s worth noting that none of the other National Minimum Wage rates are changing at this time. These are usually tinkered with on 1st October every year so don’t be surprised to hear more on this in Budget 2016 next Wednesday, 16th March.
Since the onset of the recession, high streets across the country have struggled to keep tenants. From the loss of “the big guys” such as Woolworths, JJB Sports, Game and HMV to name but a few, to the high turnover of new local start-ups and the closure of some long standing, local landmark businesses – it’s been a tough journey.
The consensus seems to be that that journey is coming to an end. I agree with this to a certain extent for certain sectors. But when we come down to a local level, on the face of it, there is still work to be done.
Newry’s Creamery Quarter (Monaghan Street to Monaghan Row) and Cathedral Quarter (Hill Street to John Mitchell Place) were for years central to the local economy. However, a walk down either is an unfortunate eyesore of empty units, to-let signs and fewer and fewer people.
So how do we reverse this trend? There are a lot of elements in the mix here that add up to the problem; more than I will discuss or claim to know much about. But for my part, I think there are some practical things we can do.
1. Incentivise and de-risk entrepreneurship.
Ok, point number one is a mouthful, but very relevant. I had a conversation with a couple of colleagues in the past fortnight about the exact topic of this article and we spoke about the building Woolworths used to trade in and about the number of empty units on Hill Street. The consensus was that “they should do something with those buildings”. But who are they? The landlords? What can they do? If no-one is interested in renting them, what else can they do?
No, “they” are the entrepreneurs. The current and future business owners. The guy that wants to open a bookshop one day, or the couple that want to run their own travel agents or the mum who makes the best cakes in the world but wouldn’t dare dream of starting a business. There’s not enough incentive and too much risk.
Incentive is probably mainly a personal thing. If running your own business isn’t a big dream of yours, you probably won’t do it no matter what other carrots are dangled in front of you, and that’s fine. But for the ones who do dream of taking the leap but stop short we need something extra. And I’m not talking about grants or other sources of funding. I’m talking about the intangibles – the mentoring, support and advice of the people in business. From the planning stage, to opening the doors on day one and beyond.
I was at an event in Newry & Mourne Enterprise Agency and Conor Patterson, the Chief Executive, used a great word in his speech – co-opitition. Cooperative competition. I think, to a certain extent this is happening in Newry. Business owners, by proximity or otherwise, know each other and talk and work together on certain things, all the while competing for the same trade. The logic behind this has a lot of validity – if my shop is packed with customers, yours is also more likely to be packed too and vice-versa.
This co-opetition would be a real kick-start to the next raft of entrepreneurs looking to move in to those empty units. It would probably happen organically anyway but I think to explicitly and formally set-up something like this and let people know it’s happening might just bring those considering starting a business out of the woodwork.
This access to local expertise also goes some way to de-risk the process. But removing the risk from going in to business is tricky. Some risk cannot be mitigated. Another recession is beyond our control, bank lending policies are beyond our control, interest rates are beyond our control. But some risks can be dealt with. One of the main ones, which is closely linked to the problem being addressed here is premises, which leads me to my next point…
2. We need landlords who get it.
Efforts are being made by landlords to get properties let. But for the most part it’s not helping. Three month rent free periods and one year leases are not enough it would seem. And I can understand why. If you want to take a punt on a business idea, it’s scary to think that if you close the doors six months in, you still have to pay rent and rates for another six months with potentially no income for a number of weeks or months.
I also feel for the landlords as well. Vacant rates discounts have fallen (if not gone??) and if they still owe money on the mortgage the bank still want it whether there is a tenant or not.
I think the solution here, or part of it, is for both parties to give up just a bit more than they think they are willing to. It can only really be looked at on a case by case basis, but if a start-up could get a three month lease and had no rent to pay but covered the rates they would have the opportunity to test their trade and, if it worked, keep going and start paying rent.
The landlord should see this as an investment in the individual who had the balls to give it a go. Now the above scenario obviously doesn’t suit if your business idea is a coffee shop with a £30k fit out cost. But pop-up shops, retail trades that just need a space and some racks and shelves, they could really gain from this. And if they get some traction and keep going then we all win. We’re in to job creation, tourism benefits, aesthetic benefits, and who knows what else.
Ideally, the incentive for the landlords would come from Land & Property Services via their rates bill; a discount, a credit, a free month, something to recognise that they are trying to help their local economy. I don’t see that happening however. Rates go up and only up it seems. LPS and local authorities are unreceptive, unresponsive and uninterested in any pleas for reductions. Maybe one day…
3. We need to reclaim Newry Market.
When I was a child, I used to go Newry Market with my parents. Almost every Saturday we wandered about the stalls with the throngs of other shoppers. If I let go of my mum or dads hand, I was a goner. I’d be lost among the masses.
A walk through the market nowadays is a rather depressing affair. Many stalls are empty. Those that aren’t are terrible. For the most part it’s tat. Some of the stalls are still quite good selling homemade breads & cakes, fresh produce, fish and flowers. But mainly it’s awful. And the worst part is, it has so much potential.
To my mind, there’s no reason why Newry can’t have it’s own version of St. Georges Market in Belfast. I know for a fact that we have some fantastic local food producers, local artists, local craftsmen and women that could really up the standard of Newry Market; people and products that would bring customers in the gates.
And wouldn’t this be a great place for potential entrepreneurs to perfect their craft? A low cost, low risk chance for the girl that makes wedding bouquets to bring them along for sale or order; for the florist who can’t afford premises to begin to build the business; for the local artists to build a reputation and sell their creations. I really think this is one of the biggest missed opportunities in the CIty. But it would take a “mass invasion”, 10-20 willing participants to go in there say once a month, publicise it and do what we can to resurrect this local landmark.
4. Creamery & Cathedral Quarters have free public Wi-Fi. Use it!
A couple of years back I was part of a group of local business people and politicians who approached the council about trying to implement free public Wi-Fi throughout the city. It has been up and running for over a year now (albeit Newry & Mourne District Council did zero to publicise the fact).
This is quite an exciting asset for the area, especially for tourism/tourists. It aids businesses marketing efforts via social media and opens up the doors to any amount of creative marketing strategies such as Phlok, Dealtronic and other such platforms which help incentivise businesses and consumers to shop local.
Over and above just making the most of the WiFi, businesses should make the most of the internet in general. This isn’t particularly specific to the Cathedral and Creamery Quarters but worth mentioning.
A significant cost to many small businesses is obsolete and surplus stock. Many go with the traditional big discount sale when they can realise much higher margins by flogging this stock online – typically around 70-80% of RRP as opposed to 50% when going down the traditional sale route.
For some of the more niche products, there are great websites like Etsy out there to give retailers another low cost outlet for selling stock. Even if you are not particularly tech savvy, there are (local) companies out there that will sell your stuff for you on a commission basis – check out Cargobox.
By embracing online retail for a local level, retailers will actually help mitigate one of their main threats. If Amazon is diverting your customers attention away from you, use it to get it back and then some.
Social media is a huge thing for local businesses too. Many within the town use it and use it well. I could write a blog post on local businesses using social media alone. In short though I think all businesses have their space on social media and should experiment to find out what works well for them. The return to be gained from social media can be different things for different businesses. Some might see the results in their sales, some might just see the value in adding value to their existing customers. Be realistic in your expectations however and, perhaps most critically of all, engage with your customers. Don’t just be a shop window – be the shop keeper; be personable.
5. Carbane Development
This could be the knock-out blow to a lot of local businesses. If this dubious development goes ahead, it will further pull people out of the city centre – that’s a no brainer.
Ok, so 800 jobs are going to be created. But most studies seem to show that out of town developments result in a net loss of jobs. Ok, so it will increase spending in the area. But spending a quid in one of these multi-national stores results in approximately 5p going back into the local economy. Compare this with spending a quid with your small independent local retailer where around 75p goes back in to the local economy and you quickly see how, while spending might increase, the cash is actually being stripped from the local economy.
Aside from the shop local debate, the decision to create a site where ASDA can go seems poorly thought out. Between Tesco, Sainsburys, Dunnes, Fiveways, SuperValu, and two Lidl stores, local supermarkets would already appear to be eating each other’s dinners. Throwing another one in to the mix would further dilute the food retail sector in the city.
I actually think that in order to offset the threat of this development, we need to proactively try to attract some of these bigger retailers on to Hill Street. They will be guys who will bring people on to the street. The idea was never to stop them from turning up – the idea was to bring them in on terms and in locations that were in the interests of the area, its economy and its heritage. But in order to attract them the area needs to be shown as attractive in the first place. Kind of a chicken and egg scenario here.
I have no solutions for this threat to our city centre. Well nothing new I’m afraid. We can petition, talk to Minister Mark Durkan who approved the development, hassle the Council, kick up a fuss etc. But I wouldn’t be surprised if that weren’t enough. If it goes ahead, counteractive measures might be all the arsenal we have.
Newry is not unique in being a town where the local high street is struggling. In fact it’s probably gotten off lightly compared to many others. But that doesn’t change the fact that something needs done about this. The recession picked off a lot of businesses over the course of the past 6 years. I think it would be a shame for those that weathered the storm to fall now because of out-of-town developments, unaffordable rents and rates and, perhaps most cruelly, because the are part of the cycle of business closure/decreasing footfall. The more business that close in the Cathedral/Creamery Quarters, the less people will go there and so on. This cycle won’t just hurt our local traders though. It will have it’s knock on effect on the library, charities, taxi drivers, banks. The whole supply chain gets hit.
These areas of our city mean a lot to a lot of people. The people that own these businesses, work in them, shop in them or supply them. Some have been around as long as I can remember, some are new to the party but fit in well. I would love to see these Quarters really thriving however. Busy, bustling street of shoppers, coffee drinkers, families, tourists. A vast array of grocers and restaurants and crafts stores and jewellers and coffee shops and music stores and butchers and bakers and candle stick makers. No to-let signs. No empty units. Ok, so potentially no estate agents as they gradually go out of business but, you know what they say – every war has its casualties 🙂
To find out more about the Cathedral & Creamery Quarters including history of the area, news, what’s on, what to do and where to stay, visit Hello Newry
Since the introduction of the R&D Tax Credits in to the UK Corporation Tax regime, there have been two strands to it – the Small and Medium-sized Enterprise (SME) scheme and the Large Company scheme. Since August 2008, the definition of SME has been a company with less than 500 employees and, either less than €100m or a balance sheet with less than €86m.
In the context of Northern Ireland, the vast majority of companies will fall into the SME category and will be able to claim under the SME scheme. Which, from a tax perspective, is a good thing! The tax man will allow you to claim an additional 125% on top of the cost of R&D activities. So if you spend £10,000 on qualifying Research and Development, you are treated as having spent £22,500 and your taxable profits are reduced (or your tax relievable loss is increased).
Under the Large Company scheme, the additional relief given on top of the actual spend is just 30% – still a worthwhile relief, but pretty much miles behind the SME scheme.
However, although the vast majority of companies who are claiming R&D tax credits in Northern Ireland meet the criterion of an SME, there is a situation when they will not be able to claim under this scheme: whenever they claim grants which are State Aid Notified.
Being a member of the EU, the UK must comply with the laws surrounding State Aid – that is, the government using tax-payers money to give assistance to one or more organisations that give them an advantage over others. The laws are generally concerned with distorting competition across the EU and aim to stem any such distortion by monitoring and measuring the money Member State governments dish out to these organisations.
There is a de minimus level of state aid – a threshold of state aid a company can receive without causing any issue. This level currently sits at €250,000 in any 2 year period.
The R&D Tax Credits are a form of State Aid. More often than not, the scheme doesn’t result in cash being given to a company (although this can happen) but the enhanced tax saving available is deemed to be financial assistance.
So, in order to try to ensure that the de minimus level of State Aid is not breached by any company claiming under the SME scheme, the government has had to exclude from the scheme any SME that was in receipt of a government grant that was State Aid Notified.
In Northern Ireland at the minute this causes a problem. Some of the most common grants available are either awarded by Invest NI or a third-party on behalf of Invest NI. And, you guessed it – they are almost all State Aid Notified.
This is unfortunate. Not least because the companies carrying out this expensive and essential R&D are exactly the ones most likely to seek and claim grant funding.
However, there are a few things you can do in order to maximise your claim to R&D Tax Credits and, if the circumstances allow for it, claim a few pound back from HMRC in cash.
1. Ask Invest NI to award your grant under the “de minimus” rules.
Up until recently, Invest NI wasn’t able to do this. All grants were dished out as State Aid notified and no-one really complained. That was until the accountants told these companies that they were losing out on the uplift in their R&D expense and potential cash payments.
So, after a bit of pressure being put on, Invest NI have found a work around and are now able to offer de minimus grants where grant funding is £100k or less.. While there seems to be an awareness of this now with Invest NI staff, make sure you ask that the grant be awarded in this way. You should still make sure that the combined grant, plus all other grants in the past two years and the tax relief don’t push you over the de minimus limits.
2. Can your R&D spend be broken down into separate projects?
It is actually possible to claim under both the SME scheme and the Large Company scheme. If a company is carrying out a number of R&D projects, any that receive grants are relieved under the Large Company scheme whilst those that do not receive government assistance are able to remain under the remit of the SME scheme.
Say for example your business is researching a new medical vaccine and it receives a proof of concept grant in relation to a piece of new equipment that is being designed to administer the vaccine. This piece of equipment is separately identifiable from the vaccine and, has its own research activities and development activities. The grant was also given specifically in relation to this equipment. So it would be treated as a separate project for R&D tax credits and, due to being in receipt of the grant would receive tax relief under the Large Company scheme. This divisibility also protects the rest of the R&D project and ensures that it can still receive the 225% relief on its spend.
3. Reject the grant. Seriously.
This seems somewhat counter intuitive but, depending on your total R&D spend, it may be better for you to reject or not seek grant funding. This comes down to the differential in the SME and Large Company scheme uplift rates (125% – 30% = 95%) multiplied by the rate of Corporation Tax (usually 20%). So, if your total R&D spend times 19% (95% x 20%) is greater than the grant amount – you’re worse off I’m afraid.
Now, this is a purely mathematical and pragmatic view of things. Naturally there are other factors to consider with grant funding. The main one being, R&D is expensive and suppliers do not accept magic buttons or well wishes in lieu of payment so if you need the cash – take the grant! Remember also that tax relief will only actually materialise if you, one day, make a profit. Grants funding can also be more valuable than potential tax relief from the point of view that it may come with some professional advice, a chance at further grant funding or an introduction to potential equity investors.
So, whilst the R&D scheme is a pretty generous tax relief, SME needs to be careful not to fall in to the trap of excluding themselves from claiming the the maximum relief possible under the SME scheme. Remember also that grants are a taxable income stream themselves. So not only might they reduced you R&D uplift, but the may in fact cancel out the uplift that you do qualify for.
As with everything in business, consider the wider context when deciding on issues of tax planning and fundraising. Never undertake a transaction solely to gain a tax benefit. Weight up all the factors, including tax, and then see what’s best for you and your business.