R&D Tax
R&D tax credits: how startups can claim innovation funding
Introduction
For many startups, research and development (R&D) is a major expense, but few founders realise they can claim back a significant portion of these costs through the UK’s R&D tax credit schemes. The government offers financial incentives to support innovation, allowing eligible businesses to recover a percentage of their R&D spending—either as a cash payment or a corporation tax reduction.
As of 1 April 2024, the R&D tax relief system has been reformed, with two key schemes now in place:
The Merged Scheme – Combining the previous SME and RDEC schemes into a single, simplified system.
The Enhanced R&D Intensive Support (ERIS) Scheme – Providing additional relief for companies where R&D spending makes up at least 30% of total costs.
To maximise your claim, it’s crucial to understand what qualifies as R&D, the types of costs you can include, and how to avoid common mistakes.
In this guide, we’ll cover:
Who qualifies for R&D tax relief under the 2024 rules
What costs can be included in your claim
How to structure your claim correctly to avoid HMRC scrutiny
Common pitfalls that lead to claim rejections
Who Qualifies for R&D Tax Credits?
Your company may qualify for R&D tax relief if:
It is UK-based and subject to UK corporation tax.
It is carrying out projects that seek to advance science or technology.
It is resolving uncertainty that a competent professional in the field cannot readily solve.
The R&D activities are taking place in the UK (with limited exceptions).
New rules from 2024: To be eligible, R&D activities must now take place in the UK. Costs for overseas R&D are only allowable in exceptional cases, such as when UK expertise or facilities are unavailable.
What Costs Can Startups Claim Under the 2024 R&D Scheme?
R&D tax relief applies to both direct R&D activities and supporting activities.
What Counts as Direct R&D Activities?
These are the core activities that directly contribute to overcoming technical challenges.
Designing and testing new or improved products, processes, or software.
Developing prototypes to test scientific or technological advancements.
Attempting solutions to a technical uncertainty, even if the project fails.
What Counts as Supporting Activities?
These are activities necessary for the R&D process, even if they are not experimental themselves.
Data collection & analysis that informs R&D work.
Project management and planning directly related to the R&D process.
Maintaining test environments for research.
Eligible Cost Categories Under the 2024 R&D Scheme
Staff Costs – Salaries, NIC, and pensions for employees working on R&D.
Externally Provided Workers (EPWs) – Payments to third-party workers not on payroll but engaged in R&D.
Contracted Out R&D – If you outsource R&D to another company, you can claim 100% of costs if they are UK-based.
Software & Cloud Computing Costs – Software, cloud computing, and data licensing directly used in R&D.
Consumables – Materials used in the R&D process, such as components, chemicals, or energy costs.
How to Apply for R&D Tax Credits
Step 1: Determine If You Need to Submit an Advanced Notification
New for 2024 – Some companies must submit an Advanced Notification to HMRC within six months after the end of the accounting period in which they intend to claim.
Step 2: Identify Eligible R&D Activities
Ensure your project meets HMRC’s definition of R&D and is advancing science or technology.
Step 3: Gather Financial Records
Track all R&D-related costs, ensuring expenses fit within HMRC’s categories.
Step 4: Complete the Additional Information Form
New for 2024 – All R&D tax credit claims must now include an Additional Information Form submitted before filing the CT600 tax return.
Step 5: Prepare a Technical Report
Clearly explain the technical uncertainties you attempted to solve and how your project qualifies as R&D.
Step 6: Submit the Claim with Your CT600 Tax Return
Include the financial breakdown and technical report in your company’s corporation tax return.
How Startup CFO Can Help
Claiming R&D tax credits can be complex, and mistakes can result in delays or missed opportunities. At Startup CFO, we specialise in helping startups maximise their claims while staying fully compliant with HMRC.
Our Services for Startups
R&D tax credit claim preparation – Ensure you claim the maximum amount possible.
Technical report drafting – We handle HMRC-compliant documentation.
HMRC compliance & audit support – Avoid costly mistakes and ensure your claim is accepted.
Introduction
For many startups, research and development (R&D) is a major expense, but few founders realise they can claim back a significant portion of these costs through the UK’s R&D tax credit schemes. The government offers financial incentives to support innovation, allowing eligible businesses to recover a percentage of their R&D spending—either as a cash payment or a corporation tax reduction.
As of 1 April 2024, the R&D tax relief system has been reformed, with two key schemes now in place:
The Merged Scheme – Combining the previous SME and RDEC schemes into a single, simplified system.
The Enhanced R&D Intensive Support (ERIS) Scheme – Providing additional relief for companies where R&D spending makes up at least 30% of total costs.
To maximise your claim, it’s crucial to understand what qualifies as R&D, the types of costs you can include, and how to avoid common mistakes.
In this guide, we’ll cover:
Who qualifies for R&D tax relief under the 2024 rules
What costs can be included in your claim
How to structure your claim correctly to avoid HMRC scrutiny
Common pitfalls that lead to claim rejections
Who Qualifies for R&D Tax Credits?
Your company may qualify for R&D tax relief if:
It is UK-based and subject to UK corporation tax.
It is carrying out projects that seek to advance science or technology.
It is resolving uncertainty that a competent professional in the field cannot readily solve.
The R&D activities are taking place in the UK (with limited exceptions).
New rules from 2024: To be eligible, R&D activities must now take place in the UK. Costs for overseas R&D are only allowable in exceptional cases, such as when UK expertise or facilities are unavailable.
What Costs Can Startups Claim Under the 2024 R&D Scheme?
R&D tax relief applies to both direct R&D activities and supporting activities.
What Counts as Direct R&D Activities?
These are the core activities that directly contribute to overcoming technical challenges.
Designing and testing new or improved products, processes, or software.
Developing prototypes to test scientific or technological advancements.
Attempting solutions to a technical uncertainty, even if the project fails.
What Counts as Supporting Activities?
These are activities necessary for the R&D process, even if they are not experimental themselves.
Data collection & analysis that informs R&D work.
Project management and planning directly related to the R&D process.
Maintaining test environments for research.
Eligible Cost Categories Under the 2024 R&D Scheme
Staff Costs – Salaries, NIC, and pensions for employees working on R&D.
Externally Provided Workers (EPWs) – Payments to third-party workers not on payroll but engaged in R&D.
Contracted Out R&D – If you outsource R&D to another company, you can claim 100% of costs if they are UK-based.
Software & Cloud Computing Costs – Software, cloud computing, and data licensing directly used in R&D.
Consumables – Materials used in the R&D process, such as components, chemicals, or energy costs.
How to Apply for R&D Tax Credits
Step 1: Determine If You Need to Submit an Advanced Notification
New for 2024 – Some companies must submit an Advanced Notification to HMRC within six months after the end of the accounting period in which they intend to claim.
Step 2: Identify Eligible R&D Activities
Ensure your project meets HMRC’s definition of R&D and is advancing science or technology.
Step 3: Gather Financial Records
Track all R&D-related costs, ensuring expenses fit within HMRC’s categories.
Step 4: Complete the Additional Information Form
New for 2024 – All R&D tax credit claims must now include an Additional Information Form submitted before filing the CT600 tax return.
Step 5: Prepare a Technical Report
Clearly explain the technical uncertainties you attempted to solve and how your project qualifies as R&D.
Step 6: Submit the Claim with Your CT600 Tax Return
Include the financial breakdown and technical report in your company’s corporation tax return.
How Startup CFO Can Help
Claiming R&D tax credits can be complex, and mistakes can result in delays or missed opportunities. At Startup CFO, we specialise in helping startups maximise their claims while staying fully compliant with HMRC.
Our Services for Startups
R&D tax credit claim preparation – Ensure you claim the maximum amount possible.
Technical report drafting – We handle HMRC-compliant documentation.
HMRC compliance & audit support – Avoid costly mistakes and ensure your claim is accepted.
Don't leave R&D tax credits on the table.
Thousands of startups miss out on valuable R&D tax credits each year. Make sure you claim every penny you're entitled to. Book a free consultation and maximise your claim.