How Startups Can Benefit From R&D Tax Credits

Small business. Group of colleagues working at table with laptops

With the worst of the Covid-19 pandemic potentially over, we begin to look towards the possibility of life returning to a degree of normality.

Many businesses and industries have been ravaged by the effects not only of the virus but also by the efforts put in place to contain it and limit its scope. 

However, out of the challenges, we are seeing entrepreneurs and people who have never set up businesses before considering the option of moving forward with their own company. There is expected to be a large rise in the number of new startups through 2021. And it is, naturally, important to have all of the information on your side as you start your new business. 

One thing that is often overlooked is research and development (R&D). Here we take a look at how your startup could benefit from the R&D tax relief available. 

A common misconception

Many businesses still think of R&D as something carried out in science labs by large corporations. But this doesn’t have to be true at all. Businesses of all sizes can benefit from R&D tax credits by carrying out research that qualifies. 

There is no reason to think that just because you are a small startup that your business cannot qualify for tax relief. Indeed, there is a government scheme that is specifically set up to help small businesses claim tax relief. 

The scheme designed for small businesses

To those startups worried that tax relief is only for larger companies, look no further than the Small to Medium Sized Entity Scheme. Designed for businesses of any size up to 500 employees and with an annual turnover of no more than £86 million or a balance sheet of no more than £74 million.  

Of course, those figures are far beyond most startups. But the important thing to understand is that businesses of any size underneath those figures can claim. 

Do you qualify for tax credits?

This is clearly the key part over whether you can claim tax relief. Functionally, if you want to make an R&D tax claim, you need to fulfil a number of criteria. For example, you need to show that you looked for an advance in either science or technology (remember, this field can be quite broad). Additionally, you need to show that you had to overcome an uncertainty during your R&D work and that this work couldn’t have been easily carried out by someone in your industry. 

What if you are using a subcontractor?

It is sometimes not well understood that businesses can employ subcontractors to carry out R&D work for them – and this work can still be the subject of R&D tax relief. This means that if you don’t have the skills in-house to conduct your R&D work you can still utilise tax relief via subcontractors. 

“As an SME if you are subcontracting out R&D work to a subcontractor you can still include these costs on your Tax Credit Relief claim”, says Simon Bulteel, Director of Cooden Tax Consulting, specialists in all aspects of R&D tax “this is regardless of whether your subcontractor is an SME, large company, individual, or qualifying body”. 

This could mean that there is more flexibility in R&D than you had imagined. 

Why would you benefit?

If you are carrying out projects that qualify for R&D tax relief, then you should get what you are owed. The government specifically offers these tax breaks as an incentive for businesses to conduct this type of work. For startups, it has never been more important to make the most of any government help available. 

Final thoughts

Startups have the option to pursue R&D tax credit relief just as a business of any size does. It is definitely worth looking into whether your business could claim tax relief. But if you do feel that the concept is still simply too large and overwhelming, it is a great idea to work with skilled professionals who understand how to get the most out of an R&D claim.

While, as we have discussed, these schemes are open to businesses no matter their size, going through the actual process of getting them approved can be time-consuming. This is where R&D tax specialists can help you. Get in touch with a local specialist who can provide examples of businesses that are similar to yours that they have helped make a successful R&D tax claim. 

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