Too Many Start-Ups Missing Out On R&D Tax Relief. Here's Why

Many common misconceptions

If someone came up to you and offered your business free, legal, no strings cash it’d be crazy not to take it. Yet by not engaging with the Research and Development (R&D) Tax Credit scheme, thousands of UK companies are doing just that.

R&D Tax Credits have been around for nearly twenty years now. So why are so many start-ups in particular missing out?

Firstly, a brief look at the scheme

We won’t go into too much detail here as all the information you need about the scheme can be found on our R&D Tax Credits page. But very briefly, R&D Tax Credits are a government-backed tax incentive for all UK businesses to encourage growth and innovation.

Essentially, if any UK company engages in innovative work that involves overcoming a specific scientific or technological challenge then R&D Tax Credits could well follow. It’s open to any company too - not just techie ones or pharmaceuticals - and we’re not talking about huge breakthroughs here either. It can simply be the creation of a new product line, or upgrading a service. As long as a technical or scientific uncertainty is addressed, and money is invested in eligible R&D projects and costs, then the work could qualify.

It’s generous too, with as much as 33 pence in every £1 of R&D expenditure reclaimable. The relief is offered as a rebate on a company’s Corporation Tax, or (for loss-making companies) as cash instalments.

There’s far more the scheme than this, and claiming is notoriously complex. This is why we strongly recommend reading through our R&D Tax Credits page, and apply using the Tax Cloud portal.

Common reasons start-ups miss out

Myriad Associates (developers of the Tax Cloud portal) has been around for nearly two decades and we’ve unfortunately seen far too many start-ups and small businesses miss out on the R&D tax relief they’re rightfully owed.

In our experience this is often because claimants wrongly believe:

1. It’s too good to be true

Entrepreneurs are used to working hard and don’t expect ‘hand-outs’ from the government. But R&D Tax Credits are simply about claiming back something you’ve already earned; it’s a legitimate government programme that rewards companies investing in innovation.

2. They can’t claim R&D Tax Credits as they have no employees

It’s true that wages are one of the biggest components of most R&D Tax Credit claims. However, there’s no stipulation in the rules that says you must have employees. As long as you’re a UK-based limited company you can apply.

3. The work is “day-to-day stuff” so it wouldn’t qualify

It’s amazing how much run-of-the-mill “daily” work will actually qualify. We’ve found that engineers especially consider problem-solving to be “business as usual”, when in fact their problems are scientific or technological uncertainties, and their solutions qualify for R&D Tax Credits.

Internal projects and prototypes are also likely to be eligible, even if they haven’t been a massive commercial success. Indeed, the R&D project in question may have been abandoned, postponed or was simply unsuccessful - claimable R&D costs may still have occurred.

4. They can’t claim R&D Tax Credits as they’ve received COVID-19 support from the government

Just because a company has claimed government support during the COVID-19 pandemic, doesn’t mean it can’t then claim R&D Tax Credits. But, the amount that can be claimed - and whether you should use the RDEC rather than the SME scheme - will be affected (see our blog: R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC?)

This is simply because some types of government support, such as CBILS and Bounce Back Loans, are classed as notified state aid. And because the SME branch of the R&D Tax Credits scheme is already so generous, it’s not currently possible for businesses to claim two lots of state aid and still use the SME scheme.

The CBILS and Bounce Back loan schemes were both launched by the government to offer businesses emergency financial support during the pandemic. Note however that the money is meant to keep the business generally afloat, so you won’t be able to claim any element of the CBILS loan if it is specifically used on R&D work. So, if this is the case, you should deduct the total amount of the CBILS loan money you put towards your eligible expenditure from your claim.

Companies may need to plan their state aid support going forward to balance it against any potential loss of R&D Tax Credits amounts.

Again, this is a complicated area which is why we advise you to get in touch with our dedicated team who can discuss your specific circumstances.

5. They can’t apply because the business didn’t turn a profit

Not a problem - the government recognises that many start-ups take some time to start turning a profit. Therefore loss making companies are also welcome to claim R&D Tax Credits and will receive the relief in lump sum payments.

Another big concern is the difficulty in applying - which is where the Tax Cloud portal is invaluable

Claiming R&D tax relief is a daunting process. Get it wrong and at best your start-up will lose out on vital extra cash. Worst case is you could end up being investigated by HMRC.

The challenge lies in identifying which projects and costs are actually eligible. Much of a company’s R&D expenditure won’t be obvious, and knowing how to present your figures correctly can be a minefield. Then you’ve got to persuade HMRC officers with a high quality technical report.

That’s why the R&D tax and funding experts at Myriad Associates created the Tax Cloud portal.

Cloud-based and accessible from any device 24/7, the portal takes you through a series of steps to put your claim together. Once you’ve completed each step, our specialists will check your application thoroughly before you move on to the next stage for complete peace of mind. We’ll also optimise it for you by looking for any expenditure you’ve missed, and we’ll check again before final submission too. Plus the beauty of the Tax Cloud portal is it costs less than the full consultancy service so is ideal for new start-ups.

Try the Tax Cloud portal now or speak to us on 0207 360 4437. If you would like to, you can also use our contact form.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad are the creators of Tax Cloud, we help enterprises navigate, apply and secure tax incentives and grants. We specialise in R&D Tax Credits, Creative Tax Reliefs, Innovate UK grants, Horizon Europe grants, and R&D Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • Strong track record spanning 20+ years delivering R&D tax credit claims
  • Over £70m claimed and counting
  • Industry leading specialists
  • We employ technical, costing and tax experts and tax experts
  • Confident of delivering value to our clients, we offer our R&D tax services on a success fee-only basis.

Meet some of the team behind Tax Cloud

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