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Research and Development Tax Credits are a tax relief designed to encourage greater Research and Development spending, leading in turn to greater investment in innovation.
This time last year Buzz wrote an article discussing what it believed to be the total addressable market for R&D Tax Credit lending. A link to that original article can be found here: R&D Tax Credit Lending – What is the addressable market?
The latest statistics from HMRC is linked below for ease and the table below helps illustrate and compare our workings from last year and also our conclusions based on the latest available data.
For those unfamiliar with this non-dilutive capital offering, companies that are expecting funds from HMRC by way of an R&D tax credit repayment can leverage this receivable as collateral and realise the majority of the cash, now, with a short-term loan.
You will note our conclusion from last year’s HMRC statistics that the number of prospective R&D borrowers could be in the region of 2,500 a year, around 200 per month, discounted by the number of borrowers who are not attracted to such a facility.
We have continued to provisionally assume that (i) first time claims are potentially too risky to lend against, subject to the quality of the qualitative supporting information and that (ii) sufficient collateral size for any loan should amount to £50k as a minimum.
It is difficult to estimate an invalid provision but, whilst the understanding of the newly imposed administration and documentation has improved since this time last year, there has been a significant uptick in the number of R&D claims going under enquiry which brings into question the quality of that collateral for those potential borrowers.
As you see, whilst the number of claims resulting in a payable tax credit has decreased overall, because the number of larger claims has increased and the average claim size itself has increased by 26% across the board, the addressable market, when factoring in minimum loan requirements, is trending upwards., up from 5,000 to 7,000.
In short, this translates to growth in the number of prospective borrowing companies.
Buzz and others continue to assist eligible borrowers with such a facility and it would be prudent to assume that Companies are becoming more aware of the increasing turnaround times from HMRC and the uptick in the number of compliance checks being opened. It could be argued that this ongoing and growing uncertainty has therefore translated to more interest in Buzz’s offering and other similar competitive offerings in the marketplace.
It remains to be seen whether the increased administration and high enquiry rates discourage UK companies from making genuine claims going forward but for now Buzz are leaning towards concluding that there will continue to be demands for R&D loans and the number of potential borrowers may continue to creep upwards.
Going forward, Buzz are uniquely positioned to help prospective borrowers, deploying our own cash reserves. This is a unique and different model to that of other lenders in this space, with much less risk assumed by borrowers when considering the potential for enforcement.
If you are interested in having a confidential discussion about your R&D claim and cash flow requirements or wish for Buzz to talk to your advisors on the same, please contact Joe on Joe@buzzcapital.co.uk.