R&D tax credits: A boost for business succession planning

Business succession planning is essential when preparing for sale or succession, but can R&D tax credits play a part in improving the value of a business? We navigate the key elements of business succession planning, the power of R&D tax relief, and how when put into action, the relief can be a fundamental aspect of succession strategies.

R&D tax credits have a hidden ability that makes a business stand out as innovative and financially intelligent, which can only make it more attractive throughout a transition of leadership. This makes the relief a superpower in the business succession planning process. 

But how can R&D tax credits be successfully integrated into business succession strategies? 

We studied business succession planning and R&D tax credits in depth, to provide you with all the answers that will help you to show your innovative prowess throughout future succession strategies. 

What is Business Succession Planning?

The idea of business succession planning is to set in motion a strategic process that will lead to a smooth transition of power within a business. This proactive approach is designed to ensure that daily operations remain functional and effective under new leadership, allowing the business to prosper. 

With the core aim of maintaining continuity, an effective business succession plan will successfully do the following:

• Mitigate disruption
• Maintain business stability
• Reduce tax burdens
• Ensure long term stability

This kind of business succession plan could have genuine positive impacts among staff, investors and other stakeholders, by improving morale and enhancing market perception. 

Failure to develop a business succession plan however, could have the opposite effect as neglecting this form of plan could result in a loss of value, operational disruptions or even familial disputes. 

Needless to say, it’s beneficial to get a head start on business succession planning – even if a transition of power isn’t in your immediate future. 

Key Elements of Business Succession Planning

Effective business succession planning can be boiled down to four key elements, each of which help to guarantee continuity throughout business operations when the time for transition may come. These key elements are as follows: 

1. Identification of adequate successors
   Process of evaluating current employees and external candidates for the leadership role
2. Valuing the business
   Provides a clear picture of market value, allowing leadership to make informed decisions ensuring they receive a fair market price when selling or passing on the business
3. Preparing successor(s)
   By providing mentoring and training for the successor(s), leadership can prepare them for the future role
4. Developing business succession plan
   Establishing a timeline and process for the transfer of power, allowing for an easy transition

R&D Tax Credits Explained

Businesses in the UK that invest in cutting edge research and development that seeks to overcome scientific and technological uncertainties, are able to claim up to 33% of their eligible expenditure, under the R&D tax credits incentive. 

This is part of the British government’s plan to develop the UK into an innovation hub that inspires advancement around the world. 

The idea is to reduce the financial burden often associated with research and development, by allowing businesses to claim:

• Direct R&D staff costs (including PAYE, NIC and pension contributions)
• Externally provided worker (EPW) costs
• Subcontracted R&D
• Consumable items (including materials used in R&D)

As the R&D tax credit relief is controlled by the HMRC, businesses must be liable to corporation tax in order to qualify. 

Benefits of R&D Tax Relief

By allowing businesses to reduce their corporation tax liabilities or to receive a cash injection, one of the biggest benefits of claiming R&D tax credits is the increase in cash flow. When received, the additional finances can be filtered back through the business, or even held on to protect against future tax liabilities. 

Other key benefits of R&D tax credit relief include:

• Improved business reputation
• Enhanced hiring opportunities 
• Long term operational stability

In addition to this, the R&D tax credit relief provides an incentive for continued innovation, especially for long term projects. 

The Role of R&D Tax Credits in Business Succession Planning

When it comes to business succession planning, there is much that R&D tax credits can do in order to attract top talent and aid in the smooth transition of power. The following image highlights exactly how they can work in a business’s favour.

How to Use R&D Tax Credits in Succession Strategies

Given the fact that R&D tax credits can elevate reputation, improve financial health and position a business as innovative throughout the succession planning process, it’s important to know how to incorporate the relief into succession strategies. 

To make the most of R&D tax credits throughout the business succession planning process, we recommend following this step by step approach: 

1. Undergo an R&D tax credit audit
   By reviewing past and present research and development efforts, businesses can establish qualifying activities. Following this up by working with R&D tax credit specialists will help with the compilation of required documentation, and ultimately maximise the claim(s). 
2. Incorporate R&D tax credits into business valuation
   By including a detailed record of R&D claims along with the financial benefits of R&D tax credits in the business valuation, it’s possible to highlight how the relief can reduce operating costs, which can make the business appear more attractive to successors. 
3. Highlight future R&D opportunities
   By demonstrating how the successor can leverage R&D tax credits with future research and development opportunities, the business is presented as forward thinking with long term profitability prospects.
4. Allocate R&D credits to offset transition costs
   By using the R&D tax credits to cover costs associated with succession such as legal fees and tax obligations, the financial burden upon both the successor and the business are lifted.
5. Outline R&D tax credits in succession documentation
   By including information on R&D tax credits such as compliance requirements and strategies, the transition is made simpler for the successor, making for a smooth transition of power. 
6. Collaborate with R&D tax credit specialists
   By working with tax professionals that understand the R&D tax credit claims process, businesses can ensure that there is a structure in place for present and future R&D claims throughout the transfer of ownership.

Additionally, if the business is being transferred to an external successor, leveraging R&D tax credits in marketing and business efforts can emphasise the businesses culture of innovation. This helps to attract potential buyers that have a proven history of investing in cutting edge business. 

How Alexander Clifford Can Help

As one of the UK’s leading R&D tax credit advisories, the team at Alexander Clifford have a proven track record of providing 5-star R&D support for innovative businesses. 

Drawing on their deep knowledge of R&D tax relief and the latest HMRC policies, our team of specialist advisors collaborate with businesses to produce in depth claims that adhere to the compliance requirements. 

What’s more is their meticulous attention to detail allows them to identify qualifying activities and costs that can enhance business succession plans.

That’s what makes Alexander Clifford your trusted choice for R&D tax credits.  Get started on your R&D tax credit claim today by entering your details into the contact form below, or click here to book an appointment with one of our specialist advisors.