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Funding Guides Feb 1, 2019 2 min read

R&D Tax Relief for UK Startups: Your Next Funding Round Could be Courtesy of HMRC

Anthony Rose

There’s an excellent HMRC scheme that gives startups around 30% of their development costs back as cash. Many startups use this as a bridging round, helping them to extend their runway. Remarkably, although the scheme was introduced in 2000, estimates suggest that up to 80% of eligible companies don’t know that they could make a claim. They either remain unaware of the scheme or wrongly assume that they won’t qualify for it. 

What is R&D Tax Relief?

R&D Tax Reliefs are tax breaks put in place by the UK Government that aim to encourage companies to spend more on R&D in the UK and in turn benefit the UK economy. They’ll reimburse around a third of everything spent on what they call qualifying activities, which includes aspects of building new products as well as developing IP.

What qualifies

The scheme is remarkably inclusive and a wide range of UK companies are eligible for either a cash payment or a corporation tax reduction if they spend money on qualifying research and development.

Companies in any sector can be eligible, however sectors where R&D is most frequently undertaken include: Software development, manufacturing, engineering, construction and pharmaceuticals.

For the purpose of tax credits, the core criteria is that your company is:

1.  Seeking to create an advance in the field of science or technology

2.  Overcoming scientific or technological uncertainty in order to achieve this.

But that doesn’t necessarily mean a startup’s technology needs to be cutting edge scientific research. R&D credits are aimed at incentivising novel technical or scientific activity with commercial applications, not University / academic research.

In fact, you might be hard-pressed to find a startup that doesn’t qualify for R&D tax credits.

When putting together an R&D tax credit claim, here are the following types of costs which could be recouped if a company has undertaken the qualifying activities above:

  • Direct staff costs including salaries, employer’s NIC and pension contributions
  • Subcontractors and freelancer costs
  • Expenditure on materials and consumables that are used up or transformed by the R&D process
  • Expenditure on some types of software

If eligible, startups can typically claim R&D tax relief for the most recent two accounting periods. In other words, the claim can be made in a 2018 accounting period using costs incurred during the 2017 and 2016 period can.

How to claim it

We’ve partnered with EmpowerRD, who can guide startups through the entire process. EmpowerRD is a new automated service that helps startups apply and claim the maximum amount possible – for the lowest fees on the market.

Typically service providers will take up to a third of the cash as their fee, but just like SeedLegals, automation and smart tech provides a faster and more cost-efficient service: EmpowerRD charges just 5% on only successful claims.

We’ve also negotiated a special discount for SeedLegals users, just enter the code SL01 when you start your claim here.

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