Extending Runway with R&D Tax Relief for UK Start-ups

We saved £300,000 a year. Every year.

That’s not a pitch. It’s a real outcome from a UK cybersecurity start-up that finally tapped into the R&D tax relief scheme.

If you’re a founder building anything remotely technical, there’s a strong chance you’re leaving money on the table.

The UK government disbursed £7.5 billion in R&D tax relief during the 2022–2023 tax year, with SMEs claiming £4.5 billion of that total.

Yet, many eligible startups still don’t apply, often due to misconceptions about eligibility or fear of HMRC scrutiny.

Recent reforms have made the system more generous for R&D-intensive startups.

What Qualifies as R&D?

HMRC defines R&D as work that seeks an advance in science or technology by resolving scientific or technological uncertainty.

This includes:

• Developing new algorithms or data models
• Building or improving software architectures
• Creating prototypes or testing new materials
• Solving technical problems that lack obvious solutions

Routine updates, aesthetic changes, or business process optimisations typically don’t qualify.

How Much Can You Claim?

As of April 2024, the merged R&D Expenditure Credit (RDEC) scheme offers a gross credit of 20% on qualifying R&D expenditure.
After tax, this equates to a net benefit of approximately 15% to 16.2%, depending on your Corporation Tax rate.

For R&D-intensive, loss-making SMEs, those spending at least 30% of total expenditure on R&D, the Enhanced R&D Intensive Support (ERIS) scheme provides a tax credit worth up to 27% of qualifying R&D spending.

In practical terms, if your startup spends £500,000 on qualifying R&D, you could receive:

• £75,000 to £81,000 under the standard RDEC scheme
• Up to £135,000 under the ERIS scheme

These funds can be reinvested into your business, extending your runway without diluting equity.

The Claim Process

Don’t go it alone. Most startups simply don’t have the bandwidth to handle this in-house, especially with genuine R&D under way.

Instead, partner with a qualified advisor who specialises in R&D tax credits. They’ll handle the heavy lifting:

• Determine Eligibility: Assess whether your project constitutes a scientific or technological advance involving real uncertainty.
• Compile Documentation: Collect detailed evidence of your R&D work, technical narratives, challenges faced, and how they were tackled.
• Calculate Qualifying Expenditure: Identify direct R&D costs such as salaries, materials, and software tools. (Unfortunately, server cost is not considered as an R&D cost)
• Submit Additional Information Form: HMRC requires a supplementary form to be filed alongside your Company Tax Return (CT600).
• File Your Claim: Integrate the enhanced R&D expenditure into your CT600 and submit it to HMRC.

HMRC aims to process claims within 28 days, though this can vary.

Ensure you work with reputable advisors who understand the technical and tax aspects of R&D claims.

Final Thoughts

R&D tax relief is a powerful tool for UK startups to extend their financial runway. By understanding the eligibility criteria and maintaining thorough documentation, you can unlock significant funds to fuel your innovation.

If you’re engaged in genuine R&D activities, it’s not just an opportunity, it’s a financial imperative to claim what’s rightfully yours.