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Startups are not maximising R&D tax credits for business innovation in UK & Ireland

Business innovation in startups and small businesses is often high risk and cost intensive.   In many countries, governments put in policies to support technology innovation.  If you are actively carrying out business innovation projects you need to invest some time to find out if your business can avail of R&D tax credits. That’s an incredible incentive for companies operating in the UK or Ireland. 

In 2000 the UK government introduced a scheme to encourage scientific and technological innovation.

In the UK, the government is providing great incentives to spur business innovation. Effectively, it means that some companies can claim back 33p on every £1 of investment.

Currently, UK government figures show that around 20,000 businesses are availing of this scheme each year, however there are still thousands of businesses that could be claiming, but are not – are you one?.

Here are 5 tips for making a successful R&D tax credits claim.

1. Look back at all potential eligible R&D activities from the past 12 months.

Eligible R&D projects should be documented and have “looked for an advance in science and technology” and “had to overcome uncertainty”. Now, that definition, or lack of it is explained by the HMRC in their simple 45 page guide.

Your project doesn’t need to have a successful launch or prove it made advances, you can still claim for the resources and time used testing those advances. So for once startup failure can provide a financial return.

So what are eligible R&D activities? They include;

Pure Research
Technical Analysis
Development Work
Testing
Training
Technical Production Support
Process Development
Project Management

You must have all the paperwork. Your R&D tax claim needs reporting evidence, receipts, and pay slips to support it. This shouldn’t be a problem for any good business, as retaining these is already a legal requirement.  So you will probably have most of the material you need to support a claim.

2. Make sure you are claiming for eligible projects.

The best projects to claim for are those that aim to overcome a significant obstacle in your industry – the bigger the project the better, because you can maximise your claim. ‘Science and technology’ can mean a huge range of sectors and disciplines, so there’s a lot of flexibility. HMRC define a company’s eligibility as:

  • staff headcount (less than 500)
  • either turnover (€100m) or balance sheet total (less than €86m).

If you’re unsure whether one of your projects would meet the criteria contact us and we will help you. Contacting HMRC will likely not give you a clear-cut answer over the phone. But whatever the case, be sure. 

3. Make sure you track the time spent on business innovation R&D activities from the start.

To make the claiming process straightforward, track all the time and activity that is going into your R&D projects. Employee costs are usually the highest contributors to the claim.  If a staff member’s time is spread over different activities, apportion their time to obtain an estimated percentage of their salary.

You can keep this simple, using a spreadsheet or there are more complex systems available, but just make sure you are recording the data on a monthly basis. If you are not sure, as for guidance.

4. Be careful if you have claimed grant support

If you have received grants in the past this can sometimes make claiming more complex. If your business received notifiable State Aid, you can’t claim for R&D tax credits on top of that for the same project. However, other forms of State Aid are acceptable, including de minimis and funding from schemes like Horizon 2020.

Likewise, if you are an Irish company, the story is similar. In Ireland, the Research and Development (R&D) tax credit, administered by the Revenue Commissioners is open to all companies in Ireland that are undertaking qualifying research and development activities in Ireland or within the European Economic Area. Qualifying R&D expenditure will generate a 25% tax credit for offset against corporate taxes in addition to a tax deduction at 12.5%.

5. Get advice from a company who knows how to deal with this.

Most startups and small businesses who haven’t looked at making a claim have probably wondered is it worth it, after getting stumped by the government guidance. Don’t be put off, and get in touch with Xcell who can help you through understanding what you can claim for, and then how to build and submit a successful claim.

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