Start-up businesses are innovative almost by definition. They have usually spotted a gap in the market and have come up with a new product or service to fill it.
Any new, emerging business is considered a start-up. How long it keeps its start-up status depends very much on the business and its growth but generally remains for no more than the first five years of its life. A start-up is typically characterised by a fast-paced environment featuring small teams with big plans. They tend to be self-funded, often with the aid of a grant, or have a business angel backing them.
A company’s first five years are often the riskiest. The directors are likely to face many uncertainties and unexpected challenges. Overcoming these hurdles often involves further innovation on top of the research and development (R&D) already being undertaken to create the business’s product.
HMRC rewards innovation with tax breaks that take into account all the money and time you’ve invested in your research and development. The R&D tax credits scheme can provide a valuable cash injection into a business while it’s in its vulnerable start-up stage.
So, just why are so many start-ups failing to take advantage of R&D tax relief?
1. We’re too busy to be bothered with R&D tax credits
This is the most frequent reason we’re given. It’s an understandable response. Getting a new business off the ground is hard work and can seem to take up all your time and mental energy. However, it should always be a priority to find ways of pumping more money into your new business. R&D tax credits can therefore prove invaluable.
Working with an R&D tax credits expert will take most of the work of the claim out of your hands.
One advantage of being a start-up is that any paperwork needed to support an R&D claim is easy to find and you won’t have to strain to remember the work carried out on a qualifying project. If you start as you mean to go on with your paperwork and note-taking, accessing this tax relief will never be a headache.
2. We don’t have enough costs to justify an R&D tax credits claim
Again, it’s easy to see where this misconception comes from. For one thing, start-ups may have few, if any, employees and even the directors, doing most of the work, will often keep themselves on low salaries. But the wage bill is just one expense eligible for R&D tax credits.
Start-ups will often use third party businesses to carry out work they do not have the facilities to do for themselves. However, if this work is part of the research and development process, then the fees you pay them are still likely to count.
In addition, the cost of any materials needed to create prototypes or working models will be eligible for a R&D claim. So too will the purchase of any software (CAD, for example) required to further the research and development. And don’t forget the utilities bills – the heat, the light, even the water in the kettle for that much-needed coffee.
As you can see, there are in fact many legitimate expenses in a start-up’s development period which will qualify for R&D tax relief.
3. Won’t the funding we’ve already received block a claim for R&D tax credits?
It’s commonly thought that receiving a grant means a start-up business is no longer eligible for the scheme. However, the grant versus R&D tax credits equation is a complicated one. The type of grant and the sum received through it will indeed affect the amount HMRC will pay back. But as the business develops, there can quickly come a tipping point when the size of the R&D tax credits claim outweighs that of any available grant.
It is always recommended to speak to an expert to make sure your business is maximising its income from grants or tax breaks.
Easy R&D consultants are all specialists. As a company we focus exclusively on R&D tax credits. Our client’s love our clarity and our collaborative approach. We ensure that the R&D tax relief process is as hassle-free and as rewarding to their business as possible.
Our easy five-step process helps our clients to focus on what’s most important: growing their business.
Get in touch with our team and find out how you can claim R&D tax relief for your start-up business.
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