Leveraging R&D tax credits to grow your IT services business
For IT services companies looking to position themselves for sale, UK R&D tax credits can offer a crucial advantage. These government incentives reduce the financial risks associated with innovation while enhancing the company’s value and appeal to potential buyers.
From a buyer’s perspective, a robust history of R&D claims illustrates operational efficiency and the company’s commitment to innovation. These can boost the company’s valuation and make it more attractive in a competitive market.
Many IT projects are eligible – whether in systems integration, infrastructure improvements or application development – even when using commercial off-the-shelf tools and technologies.
Four benefits in using R&D tax credits when preparing to grow your IT services business
The benefits of reviewing and maximising the use of R&D tax credits when preparing your business for sale include:
1. Enhancing financial performance and valuation
Company financial health and profitability are critical factors for any prospective buyer. R&D tax credits allow IT service companies to recoup part of their R&D expenditure, improving cash flow and profitability.
Projects that qualify for R&D tax credits generally add long-term value to the business. Buyers are drawn to businesses with a proven record in innovation, as this indicates future revenue potential and a competitive edge within the IT sector.
2. De-risking investment for buyers
Buyers are naturally cautious about assuming the risks associated with acquiring a company. Demonstrating a history of successfully claiming R&D tax credits reassures buyers that the company is financially and technically savvy. It also mitigates perceived risks related to innovation costs, as the buyer inherits a tax-efficient structure that can continue to benefit from R&D relief.
3. Improving operational efficiency and scalability
IT service companies preparing for a sale will look to streamline operations and enhance scalability potential. R&D credits can be reinvested to improve operational efficiency or scale the business. R&D tax credits empower IT companies to explore and expand such areas as cloud computing, artificial intelligence and cyber security, making the business more enticing to potential acquirers.
4. Showcasing innovation and technological capability
Innovation is a key differentiator for the IT services sector. Consistently investing in R&D positions companies as forward-thinking and technologically advanced. R&D tax credits can fund this investment.
A strong R&D portfolio, supported by tax credits, proves the company’s ongoing investments in intellectual property, proprietary technology and innovative services, all of which can command a higher sale price.
How we can help
Whether a company is pursuing a sale, private equity investment or a merger, ensuring you’ve secured all the R&D tax credits you are entitled to can improve marketability and final valuation.
R&D tax credits are vital tools for IT service companies preparing for sale. They enhance financial performance, showcase innovation and reduce buyers’ perceived risks, all while positioning the company as a forward-thinking, scalable and valuable investment opportunity. Contact our experts for further support.
