How R&D Tax Credits can help your start-up grow

Start-ups grow at a rate of knots - they have to if they’re going to stand any chance of survival.

LinkedIn founder Reid Hoffman pointed out that companies can scale either by creating demand for their product (marketing) or by improving their products so that it organically generates its own demand (investing). Start-ups know this all too well.

Research and development (R&D) is the key to this growth, as it’s the only way new products, services and processes can come to life.

Regardless of the industry a business is in, R&D will help to streamline processes, enhance the supply chain, reduce costs, and eliminate waste from production. Successful R&D projects can also help your team gain valuable experience and create a competitive advantage that means your business thrives in an interconnected global economy.

Innovation doesn’t just benefit the business itself but the wider community too. Users, employees, and government institutions benefit from innovative new techniques or new products. With this in mind, the British government has long offered a big financial incentive for UK companies to innovation; it comes in the form of R&D Tax Credits.

What are R&D Tax Credits?

R&D Tax Credits have been around since the early-2000s to help UK companies with the cost of innovative R&D work. As a result, British businesses have filed more patent applications and developed more intellectual property than ever before.

This generous tax relief works by allowing companies to reclaim up to 33% of their eligible R&D costs back. This is either as a reduction in their Corporation Tax bill or as a cash lump sum if the company didn’t turn a profit.

Exactly how much can be claimed depends on whether the company claims using the SME scheme or RDEC (we talk about this more in our recent article What Happens If I Need To Switch From The SME Scheme To The RDEC Scheme, Or Vice Versa?)

The spectrum of qualifying R&D projects and the costs that can be claimed is purposefully very broad. It also doesn’t matter which industry the company operates in or what size it is; if eligible R&D work has been carried out then an R&D tax claim can be made.

You might be surprised at how R&D tax relief claims add up too, even for the smallest of companies. In fact, latest government statistics released in September show that of the total £6.6 billion claimed in R&D Tax Credits in 2020-21, £4.2 billion was claimed through the SME branch of the scheme. So don’t fall into the trap of thinking your company or your project is so small it’s not worth claiming - because with average claims sitting at around £55,000 it certainly is!

How does the R&D Tax Credits scheme benefit start-ups specifically?

There are some very notable ways in which start-ups can really benefit from an R&D Tax Credits award. For example, many innovative new companies usually don’t employ many staff, but the ones that are there are often focussed heavily on R&D work. This means that a lot of these employee’s salaries and benefits can be included as qualifying expenditure in an R&D tax claim. Additionally, any materials and software that’s used in the process of the R&D work specifically can also be claimed, alongside any freelancer or subcontracting costs. So in essence, start-ups and very small SMEs tend to find that a significant proportion of their business costs can be claimed back using R&D tax relief. This is great for helping to mitigate financial risk.

Don’t forget too that having successfully claimed R&D Tax Credits you may be putting your company in a better light when it comes to finding investors. Plus of course, there's the potentially substantial amount of money a successful R&D Tax Credits claim can bring to your business. This can be spent on anything, although many companies reinvest it back into further R&D projects, boosting growth.

How Tax Cloud is making R&D tax claims simple

The R&D Tax Credits scheme has been updated and changed over the years and there have been some recent expansions to the relief. This is great, but there are unfortunately some rather annoying complexities involved in making a claim. However, this is where online, cloud-based claims platforms like Tax Cloud are making life so much easier.

The biggest difficulty companies face in claiming lies in knowing exactly which of their unique R&D project costs will actually qualify and which won’t. It’s so easy to include expenditure on your R&D tax claim that in fact shouldn’t be included - and you can pretty much guarantee HMRC will spot it. If they do, questions will be asked. And of course, HMRC is within its rights to investigate your company’s wider tax affairs, even up to seven years later. So overclaiming R&D Tax Credits is certainly best avoided.

Being too cautious isn’t great either though, as by missing off eligible R&D costs you’re simply leaving money on the table that rightfully belongs to your business.

The Tax Cloud portal works by allowing you to make a claim for R&D Tax Credits online in a step-by-step way. Developed back in 2017 by the R&D tax and funding experts at Myriad Associates, the first step is to work out how much your business could get by using the integrated Tax Cloud calculator. Then once you’re signed up (it’s free to use as our fees are only paid once your award is successful) it’s simply a case of working your way through each stage.

Our specialist team are on hand to check that only eligible costs are added in, and we’ll check your claim to make sure nothing is missed off. We’re also on hand if you need any help, and as the portal is cloud-based there’s nothing to download or maintain. It even integrates with Xero.

Once your claim is finally submitted, we can help you deal with any feedback or questions from HMRC, reducing your stress levels to zero.

There are loads of ways your business can benefit from the Tax Cloud portal. Why not book a free Tax Cloud demo today and see what it’s all about? You can also contact us online or call us on 020 7360 4437 to get started.

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