R&D tax relief for tech startups

For accounting periods beginning on or after 1 April 2024 there are two. The merged scheme gives an above the line expenditure credit at 20 per cent of qualifying spend to companies of any size. Because the credit is itself taxable, the net benefit is around 15 per cent at the main rate of corporation tax and 16.2 per cent at 19 per cent. Enhanced R&D intensive support, known as ERIS, is available instead to loss making small and medium sized companies where qualifying R&D spend is at least 30 per cent of total relevant expenditure, and is worth up to around 27 pence in the pound. You cannot claim both on the same expenditure, so establishing which route applies is the first thing to work out.

It compares relevant R&D expenditure against total relevant expenditure for the accounting period. Where the company has connected or associated companies, their expenditure comes into the calculation too, which catches out groups that assume the test is applied company by company. The company must also be loss making before any R&D enhancement is applied. There is a one year grace period for companies that qualified in the previous period and fall just below the threshold.

The work has to seek an advance in science or technology by resolving a scientific or technological uncertainty that a competent professional in the field could not readily deduce. Commercial novelty is not the test. Building something that is new to your business, or difficult, or expensive, does not qualify on its own if the underlying technical problem was already solved and documented somewhere in the field.

Staff costs for people directly engaged in the R&D, including salary, employer National Insurance and pension contributions, apportioned for the time actually spent. Also software, consumables, data and cloud computing costs, payments to clinical trial volunteers, externally provided workers, and qualifying subcontracted work. Two restrictions matter in practice. Externally provided worker and subcontractor costs are generally not claimable where the work is carried out overseas, and under the merged scheme it is usually the company that decided to do the R&D, rather than the subcontractor carrying it out, that holds the claim.

Often yes. A claim notification form must be submitted within six months of the end of the period of account unless you have made a valid R&D claim in one of the previous three years. So a December year end means a 30 June deadline. Miss it and the claim is invalid for that period, with no discretion to accept it late. This has caught out a number of companies that had a gap in their claim history and assumed they still counted as existing claimants.

Every claim has needed one since August 2023, submitted before or at the same time as the company tax return. It requires project descriptions covering the technological baseline, the uncertainties and how they were addressed, along with a cost breakdown, the agent's details and a named senior officer of the company who takes responsibility for the claim. Claims submitted without it are removed from the return rather than queried.

Higher than it used to be. HMRC has substantially increased compliance activity in this area and claim volumes have fallen sharply as a result. The practical protection is contemporaneous record keeping, project narratives written by the people who did the work rather than reverse engineered afterwards, and cost allocations you can actually evidence. It is also worth remembering that the named officer on the additional information form carries personal responsibility for the claim.