29TH MARCH, 2022

R&D and the pandemic: What are the effects?

A crisis like the Covid-19 pandemic presented companies with a huge set of unprecedented challenges. Businesses had to adapt and pivot - and fast.

However, the pandemic also saw companies getting creative, offering online services for the first time, and hastily building resilience through remote working for staff. It’s been two years of upheaval, and despite such creativity many wider innovation projects have often taken a back seat.

Unfortunately, a recent survey of 500 R&D active businesses conducted by the National Centre for Universities and Business (NCUB) along with Cambridge University, has found that research activities have been significantly delayed or curtailed by Covid-19.

The key findings show that:

  • 96% reported changes to collaborative projects with universities
  • 81% of businesses reported delays or stoppages to research during the pandemic
  • 77% saw delays to product/service demonstrations, testing and/or trial production
  • 12% cancelled research activities altogether

Chief executive of NCUB, Dr Joe Marshall, said the findings clearly show that UK businesses have struggled to engage in R&D work during the pandemic.

He said: "Covid-19 has affected research and innovation activities, but it is precisely these activities that will be vitally important to our recovery. It is therefore hugely concerning that these new results show that businesses that currently invest in R&D in the UK have suffered significant delays and stoppages to their innovation activity. The pressure for the nation to position itself as a global competitor for further R&D investment has truly never been greater, and this needs to be rectified urgently."

During the pandemic the number one concern for most businesses - especially SMEs - was cashflow. The pandemic seemed to come out of nowhere and for many the lockdowns meant virtually no customers at all. It’s no wonder R&D suffered.

A lack of working capital makes R&D a struggle

The effective management of working capital is crucial in financing and facilitating growth. But when you’re hit with a global pandemic out of the blue, all bets are off. Something about best laid plans?

It becomes simply about day-to-day survival.

Lack of working capital does not automatically mean a business is unprofitable, although the detrimental effect can be the same. To state the obvious, no cash flow means meeting bills, overheads and other financial obligations. Not only could legal problems then follow, but also liquidation of assets and even bankruptcy. And of course, when you’re simply trying to keep your head above water each week, innovation often takes a back seat.

R&D challenges going forward

The one thing we really learnt since 2020 is how important technology, R&D and innovation are to our economy, our health and to society as a whole. Fingers crossed, it seems the worst of the pandemic is behind us and any further Covid-19 lockdowns look extremely unlikely. But with global R&D investment taking a big hit, businesses must be in a position to innovate and move forward. This involves companies and academic institutions working together to invest in research and create value through innovation.

The good news is, the survey does show that businesses are delaying, rather than cancelling, their R&D and innovation work. How and when they get their R&D flowing once again depends on the individual company’s cash flow and other factors. But as the new financial year kicks off, there’s hope that R&D investment will resume in earnest.

Of course, cash flow issues and labour challenges didn’t suddenly start with the pandemic, they’re as old as time. This again really highlights the importance of UK companies developing strategies that not only see them through the end of the pandemic, but that will better equip them to face whatever comes along next. Yes, even (deep breath) another pandemic.

In other words, it’s tempting to say “phew it’s over” and mentally return to 2019. But with the world continuously changing and new challenges coming thick and fast, the UK’s research base is key in staying globally competitive and also in decarbonising.

Covid-19 has drastically sped up R&D in some sectors, such as health and medicine, but in many industries it’s stalled. Only by picking it up again can we hope to truly recover.

R&D Tax Credits can cover up to 33% of R&D costs

How? As a rebate on Corporation Tax, or - for loss-making companies - a cash lump sum.

It’s estimated that for every £1 spent on research and development, £1.53 to £2.35 is returned to the British economy. For this reason, the government has long looked to encourage company investment in R&D by rewarding UK companies that plough money into technical and scientific research. One of the main supports is R&D Tax Credits.

When a UK company invests in developing something new or improving an existing product, process or service, it becomes a potential candidate for R&D Tax Credits.

It’s a generous tax incentive indeed, with a huge range of projects and costs eligible. However, unfortunately the rules and guidelines governing this niche area of tax are complex which is why Tax Cloud was created.

When you complete your own R&D tax relief claim online using the Tax Cloud portal for businesses, it’s simply a case of working through each step to meet HMRC criteria. Our expert R&D funding team are on hand to guide you along the way, and we’ll also make sure every single eligible cost is included so nothing is left on the table. It’s this combination of technical and tax knowledge that’s integral to maximising our clients’ R&D tax claims.

Start off by using the Tax Cloud calculator to see how much you could claim in R&D Tax Credits. Regardless of size, sector or industry, if your company has undergone any eligible R&D projects over the last two years, a tax rebate is likely.

Myriad Associates is the specialist name behind the Tax Cloud portal, and there’s wealth of information available about R&D Tax Credits on the Myriad website. Alternatively, why not sign up today or call the Tax Cloud team on 020 7360 4437.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Jillian Chambers Jillian Chambers Technical Analyst/Writer
Lauren Olson Lauren Olson Technical Analyst Manager
Rabia Mohammad Rabia Mohammad Corporate Tax Associate