Fundamentals of corporate finance: Leveraging R&D relief

Understanding the fundamentals of corporate finance is a necessary part of modern business, but how does R&D tax relief play a role in forming financial strategies? Delve into the key concepts of corporate finance, the benefits of incorporating R&D tax credits, and how effective resource allocation can strengthen business growth opportunities.

Behind every successful business, there sits a corporate finance plan designed to optimise financial performance and implement growth. With R&D relief providing a sustainable funding resource, finance planning can be modified to include innovation ventures that drive market competitiveness. 

Today we’re embarking on a journey of discovery to find out how you can embrace the fundamentals of corporate finance while leveraging R&D tax credits. 

Definition of Corporate Finance

Corporate finance is a form of financial planning that focuses on managing a corporation’s financial activities to achieve strategic goals. 

To ensure the business is operating efficiently and profitably, corporate finance typically involves:

• Planning
• Acquisitions
• Management of financial resources

By evaluating and selecting essential investment opportunities designed to expand returns while achieving fundamental business goals, this form of planning can have a significant impact on long term profitability and financial sustainability.

Corporate Finance and Strategic Business Planning

When considered as part of a strategic business plan, corporate finance generally comprises three primary focal points. These focal points are as follows:

1. Capital budgeting
2. Capital structuring
3. Working capital management

By evaluating long term investments and projects likely to yield great value, capital budgeting not only maximises financial opportunities, but it also aligns business objectives. 

The goal of capital structure is to combine risk management with cost minimisation by weighing debt and equity that finances the business. 

Meanwhile, working capital structure ensures that the cash flow throughout the business is secure, ensuring that short term obligations are met and daily operations run smoothly.

By minimising risk and improving cash flow, corporate finance can be implemented in long term business strategies that creates value for shareholders. Meanwhile, it works to produce additional resources that support business growth and expansion.

Fundamentals of Corporate Finance: The Key Concepts

While there are three primary focal points, there are various fundamentals of corporate finance that combine to create a formidable financial strategy that simultaneously supports the interests of shareholders and stakeholders alike. 

The key concepts that make up the fundamentals of corporate finance are: 

1. Cash flow management
2. Investment decision making
3. Capital structure
4. Financial risk management

Cash flow management is the process of monitoring and analysing money as it flows in and out of the business. This process allows the finance team to assess financial performance and operational stability by maintaining sufficient liquidity. 

Investment decision making is a critical part of business finance. This form of decision making delves into weighing the risks of certain projects, evaluating whether the investment of time and resources will be beneficial to long term goals. Ultimately the aim is allow decision makers to make informed decisions that benefit the business and stakeholders. 

We touched on capital structure as one of the focal points of corporate finance, but it also falls into the fundamentals. By choosing the right mix of debt (money borrowed from lenders that must be repaid) with equity (includes venture capital), a business may be able to minimise the cost of capital, allowing them to maintain financial flexibility. 

Financial risk management is an ongoing process of reducing the impact of financial risks that businesses encounter throughout daily operations. This involves identification, assessment and mitigation in order to prevent risks that may jeopardise profit targets.

What is R&D Tax Relief?

Formed by the British government in the year 2000, R&D tax relief is a form of innovation funding designed to incentivise innovation performed by businesses throughout the UK. 

It works by providing tax credits or a cash injection to businesses that invest in qualifying research and development projects. This enables businesses to receive up to 33% of their eligible expenditure. 

To qualify for R&D tax credits, businesses must be sure they meet HMRC’s key eligibility requirements, which is as follows: 

“Research and development (R&D) tax relief supports companies that work on innovative projects in science and technology. To qualify for R&D relief, a project must seek an advance in a field of science or technology. Only companies chargeable to UK corporation tax can qualify for this relief.”

HMRC, Check if you can claim R&D tax credits 

How R&D Tax Relief Aligns with Corporate Finance

R&D tax relief provides a guaranteed return on investment for eligible research and development projects, meaning risks of innovative endeavours are immediately reduced.

This allows businesses to pursue cutting edge projects that produce a marketable:

• Product
• Process
• Software
• Solution

This allows the business to explore additional revenue streams, while ensuring a reduced cost in terms of their own investment.

Benefits of R&D Relief in Corporate Finance Strategies

Historically, R&D tax credits have been proven to support corporate finance strategies. They do this by presenting businesses with a variety of benefits including: 

• Reduction in tax liabilities
• Increased cash flow
• Improved reputation among investors
• Reduced financial risk
• Increased profitability opportunities

Additionally, businesses are able to allocate the funds received from R&D tax relief to support hiring efforts, acquire cutting edge technology, improve marketing efforts, or even expand operations. 

Leveraging R&D Relief for Corporate Finance Strategies

To successfully leverage R&D tax credit relief into corporate finance strategies, we recommend following these key steps:

1. Identify eligible projects
   Work with operational teams to establish how the project and its activities advance knowledge and overcome scientific or technological uncertainties
2. Calculate potential savings
   Work with financial teams to establish eligible expenditures and calculate the total benefit of the R&D claim
3. Align relief with financial objectives
   Incorporate savings from the relief into the financial strategy and allocate funds where they’d have the best benefit for the business
4. Collaborate with an R&D tax credit advisor
   Working with professional R&D tax advisors that understand the policy and guidelines can streamline the application process and maximise the relief, as they may identify missed qualifying activities and expenses

How Alexander Clifford Can Help

As one of the UK’s leading R&D tax credit advisories, the specialist advisors at Alexander Clifford help businesses to save time with their R&D tax claims. 

Relying on their meticulous attention to detail, the members of our team collaborate seamlessly with clients to compile effective claims that adhere to the latest HMRC policy and guidelines. So far this has allowed them to compile and submit over 2,400 successful claims on behalf of our clients, resulting in a combined benefit of over £83 million. 

That’s what makes Alexander Clifford your trusted choice for R&D tax credits.

Find out why our clients love our 5-star R&D advisory service. Fill in the form below or click here to book an appointment with one of our specialists.