How Research & Development (R&D) tax relief works for startups

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Startup companies especially those in the technology and sciences niche often have brilliant business proposals in mind.

However, most of them lack enough financial support. Fortunately, there are plenty of ways you can finance a startup business. One of which is through a research and development tax credit.

A long time ago, only large and well-established companies who contribute significant knowledge to their industry can file and claim research and development tax credit. Nowadays. even small and medium-sized companies can claim this type of tax credit.

It’s provided to companies who develop or improve products, software and/or processes in a certain group of industries. The government only supports startups including physics, chemistry, biology, computer science and engineering. It’s a government-provided incentive that can be used to reduce the R&D cost.

How does it work?

With the help of this tax credit, you can get back 30% of your R&D costs as cash. Alternatively, you can use it to decrease your tax bill.

While this type of credit was introduced sometime in 2000, many startup companies in the UK don’t know how to use it. You can use this credit as an alternative to innovation grants. Also, you use it to complement your grant if you already receive it.

In most cases, the tax credit rates for R&D amounts to 33p for every £1 you spend on eligible projects. To know how much you can get for the credit, you must check your company’s total R&D expenditure. The authorities will determine the eligibility of the R&D projects and categorise your financial position accordingly.

How can I qualify for it?

This type of credit advantage can help you grow your business. In order to qualify for an R&D tax credit, you must explain how your company project can:

  • Discover any science and technological advances
  • Overcome issues and uncertainties effectively
  • Stand out from the sea of discoveries and inventions made by other professionals in your field

Your R&D project should focus on sciences, maths, computers, and technology. If your company’s niche classifies under the social sciences, economics and theoretical studies, you might not qualify for this credit privilege.

The advancement that your project must provide should cover the entire niche and not just your business. Your discovery or invention should the first of its kind in your industry. It cannot be an existing technology that you wish to use for your company for the first time.

Once you have presented your idea, you need to show how you can overcome uncertainty. You should be able to show results and analysis. Also, you need to establish that other experts cannot replicate your results. You can do this by showing trial tests done.

If you receive an approval, you can use this credit relief to reimburse a small fraction of your staff costs, subcontractor expenses, plus expenses for consumable items such as raw materials and utilities. Do take note that you can’t use it to claim for costs made in producing or distributing the products, patent processing and rental fees.

If you need help, you can use an online portal that caters to small and medium businesses. They will help you understand how to file for an R&D tax relief benefit.

How do you claim an R&D tax relief?

In order to make a claim, you need to use the revenue online service, otherwise referred to as ROS. You must ensure that your company satisfies all of the provided requirement before you file for a claim.

Make sure to claim the tax relief within 12 months of your expenditure. Your chosen provider can help you sort out the paperwork needed for the tax credit.

As a startup, you must also show that your company has less than 500 staff and that you have a balance sheet with less than €86m or a turnover of less than €100m.
Moreover, part of the application requirement is to include companies and partnerships that you have as an SME.

Struggles of a startup company

Every business, be it a big or small company, will face a number of issues and roadblocks along the way. Some of the most common problems faced by startups include showing value to target customers, securing the approval of investors, and introducing your business, products and services to a crowded industry.  To survive these hardships, you will need every support that you can get. The R&D tax relief is one of the many options that can help you extend your runway so you can have a safe flight towards your business goals.


Plenty of startups don’t know about R&D tax relief until now. We hope that this guide has opened your eyes to more opportunities for your business. Find a company who can help you sort out all the application requirement needed to claim a startup research and development tax credit.