Why don’t start-ups claim R&D tax relief?

R&D tax relief should be a no-brainer for tech start-ups – they’re usually doing loads of innovative R&D, have eligibility up to the eyeballs and, by definition, are always on the look-out for funding! So why is the up-take of R&D tax relief so low amongst these companies?

During our time in the R&D tax relief world we’ve observed that there are three very common reasons for start-ups not to claim, and none of them are that they are unaware of the scheme!

They’re too busy

they're too busy to prepare R&D tax claims image

Now, we know that busyness is probably the most common reason given by any company to avoid working on their R&D tax claim, but this is especially true for start-ups. Most founders are busy trying to find funding, develop their product, sell the product and grow their team, all whilst being unsure whether the business will even exist in three months – it’s exhausting!

For a founder to take time out of their schedule to work on an R&D tax claim they have to be completely convinced that it’ll be worth their time, which leads on to our next two points.

They’ve had grants and other funding

they've had grands and other funding image

Even now, a lot of companies (and even R&D tax providers!) think that you can’t claim R&D tax relief if you’ve received grants and other funding. This belief is especially widespread amongst start-up founders, which is unfortunate given that they are also more likely to have received grant funding!

Of course, while having received funding doesn’t prevent a company claiming R&D tax relief, it does affect the tax benefit that they can expect to receive. If a start-up founder only has one project with low costs that has been grant funded, only getting RDEC relief might not be worth their time and effort.

They don’t have enough eligible costs

they don't have enough eligible costs image

This can be the killer reason for start-ups not claiming R&D tax relief. In the early days, founder/directors are often completely unpaid or on very low salaries. In the absence of other staff salaries or significant raw materials or subcontractor costs, this can be a complete blocker to making a claim. Furthermore, as start-ups begin to become profitable, founders often decide to pay themselves through dividends, which can keep the eligible expenditure below a feasible level for making a claim.

What can I do for my start-up clients?
helping your clients image

Helping your start-up clients understand the best ways to fund their business and the implications of funding decisions, can be invaluable to their success. For example, being able to advise on the tipping point where taking a grant can actually cost a company money in the long term could help prevent your client taking on the burden of an inadvisable grant. In the same vein, looking at the tax affairs of a start-up holistically could highlight whether taking a salary or dividends is better in the long run.

Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook


You might also like

R&D compatibility with capital allowances

R&D tax relief and Capital Allowances

A capital allowance is an expense that a company can claim against its taxable profit, reducing its tax liability and improving cashflow. In the UK there are several different types of capital allowance, covering...

Feature: Checking for Eligibility

Feature of the Month | Checking for Eligibility: How is this done, and how can the WhisperClaims app help?

For many of our users, determining whether their client is eligible for R&D tax relief can be challenging. Happily, due to the way the WhisperClaims app is set up, they can use it to...

Identifying Eligible Clients in Architecture

Identifying eligible clients in Architecture

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in this blog series,...

Book a demo & get a guided tour of WhisperClaims

Book now

We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our privacy policy.