18TH JULY, 2022

How R&D Tax Credits can help your startup grow

Startups will only survive if they grow - and fast. LinkedIn founder Reid Hoffman pointed out that companies can scale either by creating demand for their product (marketing) or by improving the product so that it organically generates its own demand (investing).

Investments in R&D can help any business - regardless of industry. It’s the key to streamlining processes, enhancing the supply chain, reducing costs and eliminating waste from production. Well-executed R&D projects can help your team gain invaluable experience and create a competitive advantage that helps your business thrive in an interconnected global economy.

Successful innovation also has a lasting impact on the wider community. Users, employees, and government institutions benefit from innovative new techniques or new products. With this in mind, the British government has long offered R&D Tax Credits to help with the cost of vital research and development.

R&D Tax Credits: What’s it all about?

R&D Tax Credits have been around since the early-2000’s, helping to spur investments in long-term technical projects in industry. As a result, British businesses have filed more patent applications and developed more intellectual property than ever before.

With recent expansions to the program, claiming tax credits is easier than ever, especially thanks to online platforms like Tax Cloud.

Essentially, the R&D Tax Credits scheme allows for certain research and development-related costs to be claimed back from HMRC. This will be either as a reduction in Corporation Tax, or (if the company made a loss) as a cash lump sum.

The range of costs that qualify, and the scope of R&D projects eligible, is purposefully really broad. And with up to 33% of costs reclaimable, we’re talking serious cash here.

Interested in knowing more? Take a look at our R&D Tax Credits Explained page.

It’s all about advancing science or technology in your field

The big indicator of an R&D tax relief claim is whether money was invested in advancing any area of science or technology within the field your business operates in. Often this happens automatically in the process or developing a new product or service, or upgrading an existing one.

Ask yourself: Could a competent professional working in this industry deduce the outcome of my R&D project easily from the start? If the answer is no, then you could well have a claim.

What costs can be included in an R&D Tax Credits claim?

The exact costs that you can claim for obviously depend on the specifics of your R&D project; every one is unique. This is why claimants use the Tax Cloud portal as a fully guided way to make their claim, as our experts can tell you exactly which costs can be included and which should be left out.

However, as a guide, there are some big costs that pretty much everyone includes in their R&D Tax Credits claim. They are:

Staff costs

Any time spent by employees on an eligible R&D project can be included in an R&D Tax Credits claim. So this would be the cost of their wages/salaries for example, as well as the cost of employers' national insurance and pension contributions. If the employee incurs any expenses in the course of their R&D work, which they claim back from the company, these expenses can also form part of a claim.

Bear in mind you’ll need to apportion the time each staff member spends on R&D activities as this is the only time you can claim for. Make sure it’s reasonable too, so for instance if Paul Smith spent 70% of his time on R&D across the year, you could include 70% of his wages/salary, employers pension costs and employers NI for the year in your claim for R&D Tax Credits.

Software costs

Any software costs relating to your R&D project can also be included in an R&D Tax Credits claim. For example, if you had to buy a design programme needed solely for your R&D work, you can include the costs involved. This could be purchasing and licensing costs for example.

However, if the programme is used for work that is not related to R&D, you will again need to make a reasonable apportionment. You could do this by estimating the number of hours users have spent on R&D activities compared to other work.

Utility costs

This is anything consumable that’s used up in the R&D process; things like electricity, water, fuel or gas. Again it will need to be entirely attributable to the R&D, so a sensible apportionment will need to be made.

Material costs

Any costs for materials used up in the R&D process specifically can also be included in a claim for R&D Tax Credits. This would be materials used in creating prototypes or carrying out trials, as well as the materials used in actually manufacturing your final product.

Remember though that if the materials are used to make a product that was later sold, they can’t then be included in an R&D tax claim.

But this is just for big multinationals and well-established companies, right?

Wrong! SMEs and start-ups can benefit from R&D Tax Credits too. As long as the company is registered for Corporation Tax in the UK, and has carried out an eligible R&D project with qualifying costs, then R&D Tax Credits are likely to follow.

Why not contact us for a free Tax Cloud demo to understand more about how it all works?

Submit a fully optimised claim today

The Tax Cloud portal is so easy to use as it’s simply a case of following each fully-guided step to put together a personalised claim for R&D Tax Credits.

With more than 10 years behind us specialising in all aspects of R&D tax relief and funding, the Tax Cloud portal was launched in 2017 by Myriad Associates. Once you’ve completed each stage, we’ll check it and give feedback before the next stage unlocks. We’ll also check it before final submission so you know it’s completely watertight.

And the best bit? The fees are much lower too, making it a great option for SMEs and startups.

Not convinced? Check out our recent blog What are the benefits of a self-service R&D tax portal? or give us a call on 020 7360 4437.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
JEan Rollinson Jean Rollinson Senior Technical Analyst/Writer
Rabia Mohammad Rabia Mohammad Corporate Tax Associate