Can your startup afford to miss out on R&D tax credits?

R&D tax relief was introduced by the government in 2000 to encourage UK companies to invest in innovative projects. The scheme provides a lucrative tax incentive for any UK company registered for Corporation Tax, regardless of its size or industry sector.

The assumption that R&D only occurs in science laboratories or tech companies, however, is still widely held and outdated.

For R&D Tax Credits to be claimed, a project must attempt to resolve a specific "scientific or technological uncertainty". This may mean developing a brand-new product, service, or process, or improving an existing one.

As long as some sort of technological or scientific research was conducted, the project itself does not even need to be successful. A company may be entitled to reclaim up to 33% of its eligible R&D costs through R&D tax relief. This may be either as a cash lump sum or against its Corporation Tax bill. In other words, even for the smallest projects, this is not a small amount of money.

Why aren’t companies claiming R&D Tax relief?

HMRC estimates that 85,900 startups claimed R&D tax credits for the year ending March 2022. This figure illustrates the positive news that more and more startups are taking note of this significant program.

And, with an average SME R&D tax credit claim of over £57,000, it’s now time to ask yourself, “can your startup afford to miss out on tax credits?”. You can find out by contacting Zyla Accountants.

The following are common issues:

Believing they are too good to be true?

Entrepreneurs don't expect handouts from the government, let alone start-ups and small businesses. However, R&D tax relief is not a handout; rather, it's a chance to claim back money you've already earned. The government is rewarding companies for their innovation in a way that is legal, decent, and honest. Don't forget that the government isn't just doing this out of goodness of heart. Innovative companies will grow, employ more people, and benefit the economy as a whole. This is something the government is keen to encourage as a way to boost UK coffers.

Not understanding what work qualifies for the scheme

You'd be surprised how much everyday work qualifies for R&D Tax Credits. Technical or scientific uncertainty tends to lead to R&D Tax Credits in many cases when solving problems.

It is also possible to fund prototypes and internal projects, even if they don't generate much revenue.

Thinking that that need to be profitable to make a claim

In the beginning, a lot of startups and SMEs don't make money, and the government is aware of this. It is therefore possible for companies that are losing money to claim R&D Tax Credits, which are paid out in cash.

Believing they need multiple employees

Wages are one of the biggest parts of an R&D tax relief claim, but there’s nothing specific in the rules that says a company must have employees. As long as your company is based in the UK you can apply for R&D Tax Credits.

Complexity scares them off?

R&D Tax Credits aren't as straightforward as filling out a form. Applicants must prove their eligibility through the application process, which is notoriously complex. HMRC officers must be persuaded of the project's eligibility through the writing of a comprehensive technical report. As a result, knowing exactly which costs are admissible (and which aren't) in a claim is much more difficult than it sounds. As a result, many companies put the task on the back burner until it is too late.

In Summary

The business environment is particularly challenging for SMEs. The cost of living is spiraling, and any source of income that can be generated is welcome. Are you missing out on thousands of pounds in extra revenue?

R&D Tax Credits offer many benefits. R&D claims average over £57,000 on average! A successful completion of this process can have a transformative effect on your business.

Get support from Zyla Accountants today. Our trusted process has been successful for many businesses, and we enjoy working in this area. We have helped our clients claim over £850,000 in R&D claims in 2022 alone. If you need help with your claim, we're ready to help.