R&D tax credits: What startups miss, and how to make the most of a new regime
By Emily Wood, Senior Vice President, Early Stage Ecosystem Coverage
Guest post by Emily Wood, Senior Vice President, Early Stage Ecosystem Coverage at HSBC Banking
Key Insights
The UK now uses a single, unified RDEC scheme with a 20% headline credit (~15â16% net).
Eligible lossâmaking SMEs (â„30% of operating spend on R&D) can access enhanced ERIS relief (~27% net).
HMRC is tightening scrutinyâfailures in documentation or vague descriptions can lead to rejection or clawbacks.
Clear, real-time recordâkeeping and collaboration between finance and engineering are vital.
Spring 2024 ushered in a reimagined UK R&D tax regime: the merged RDEC scheme, offering a single 20% credit affecting all companies, large and small. While simpler, its net benefitâ15â16% post-taxâis less generous than what previous schemes provided.
To boost support, loss-making SMEs spending 30% or more of their operating expenses on R&D may qualify for ERIS (Enhanced R&D Intensive Scheme), delivering up to ~27% net returns. Though more forgiving than its predecessor thresholds, ERIS is still intended for deeply R&Dâfocused businesses.
Yet HMRC is also sharpening enforcement. They define qualifying R&D as an âappreciable advanceâ in science or tech; generic software or routine tasks do not count (a website, for instance, wonât qualify). Reclaimed creditsâor subsequent HMRC assessmentsâare not uncommon without strong records.
To stay ahead, founders are advised to embed R&D evaluation throughout engineering cyclesânot kickstart everything at year-end. Real-time documentation, project logs, and tying software milestones to innovation proofs can make or break claims.
Coordination between CTOs or VPs of Engineering and financial teams is crucial for accurate claims, especially when contractor or agency work is involved. Early notice filings (within 6 months of the fiscal year-end) are now mandatory for first-time or lapsed claimants.
For startupsâand particularly founders in biotech, fintech, or deep techâR&D tax credits offer essential, nonâdilutive capital. But maximizing them today requires disciplined processes, cross-functional clarity, and documentation rigor. When done well, the financial upside and credibility boost are well worth the investment.
