R&D Tax Relief
R&D Tax Relief for Startups: What Qualifies and What Evidence Do You Need?
A founder-friendly guide to technical uncertainty, qualifying work, evidence and the current UK R&D tax relief process.
Startup work may qualify for UK R&D tax relief when a project seeks an advance in science or technology and has to resolve scientific or technological uncertainty that a competent professional could not readily work out.
Commercial novelty is not enough on its own. A new product can include qualifying technical work, routine development and non-qualifying commercial work at the same time.
What does HMRC mean by an advance?
The project should seek an advance in overall knowledge or capability in a field of science or technology, not simply an improvement that is new to the company. The advance may relate to a product, process, material, device or service.
For software, the question is normally about the underlying technological capability or uncertainty, not whether the app has a new feature or business model.
What is technological uncertainty?
There is technological uncertainty when it is not readily deducible whether something is scientifically or technologically feasible, or how to achieve it in practice. The uncertainty should be judged by a competent professional working in the relevant field.
Routine configuration, ordinary bug fixing and applying established techniques generally do not qualify. A difficult project is not automatically an R&D project.
What evidence should a startup keep?
a short description of the intended advance;
the specific uncertainties and why the answer was not readily available;
the people involved and why they are competent in the field;
tests, failed approaches, design decisions and technical records;
the start and end of the qualifying work;
a clear method for connecting qualifying activities to costs.
Good evidence is usually created during the work. It does not need to be a formal R&D diary, but it should let someone understand what the team was trying to resolve and what was actually done.
Which costs can be relevant?
Potential categories include staff costs, externally provided workers, subcontracted R&D, software, consumables, data and cloud computing. The rules, restrictions and treatment can differ by scheme and by the location or contractual arrangements of the work.
Do not apply a broad percentage to the whole payroll without understanding the activities. The cost method should follow the qualifying work and the people who performed it.
Which R&D scheme applies now?
For accounting periods beginning on or after 1 April 2024, the merged R&D expenditure credit is the main scheme, with Enhanced R&D Intensive Support available to eligible loss-making R&D-intensive SMEs. See the current HMRC guidance on the merged scheme and ERIS.
The company may also need to submit a claim notification or an additional information form. Timing matters, so review the position well before the Company Tax Return deadline.
What makes a claim easier to defend?
Start with the project and uncertainty, not the available tax benefit.
Interview the technical people who did the work.
Separate qualifying work from routine development and commercial activity.
Use a transparent cost method that can be reconciled to the accounts and payroll.
Make the technical narrative and cost calculation tell the same story.
Frequently asked questions
Does every software startup qualify?
No. The company must identify a qualifying advance and technological uncertainty. Product innovation or complex code alone is not enough.
Can a failed project qualify?
Potentially. A project does not have to succeed, but the work must still meet the R&D definition and the costs must be eligible.
How much does Startup CFO charge?
We review the projects, evidence, costs and claim period before agreeing the scope and fee. Tell us about the work and we will explain the next step.
Send an R&D enquiry for an initial review, or read about our R&D claim service.
Important: This article is general information, not tax advice. Eligibility, rates and filing requirements depend on the accounting period and company facts.
