How to raise investment in the USA: guide for UK startups
Want to attract US VCs? US legal expert Daniel Glazer of Wilson Sonsini explains what US investors look for, when to do...
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.
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.
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:
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 2020 accounting period using costs incurred during the 2019 and 2018 period can.
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