Raising Finance

How to grow your innovative startup into a business eligible for R&D tax credits

5 min read

01 March 2018

Here’s how you can use the government’s R&D tax credits scheme as a launchpad for your new business, writes CEO at Myriad Associates, Barrie Dowsett. 

In a hypercompetitive world, one of the few ways a startup can stand out from the crowd is to be more innovative.

Better techniques, smarter delivery, clever products, and unique services can all help you gain an edge over your well-funded and more experienced rivals.

A combination of innovation and risk-taking has helped companies in Silicon Valley conquer the world. British startups need to adopt a similar mindset if they hope to stake a claim in their industry before a well-funded foreign competitor soaks up the market share in their region.

The UK government is well aware of the need for innovation to keep help local startups survive. Since 2000, the government has been directly incentivising innovation in the British economy with specialised tax credits.

Here’s how you can use the government’s R&D tax credits scheme as a launchpad for your new business:

Understand the scheme

Although the government’s R&D tax credits scheme isn’t complicated, a lack of awareness and certain misconceptions have prevented many businesses from seeking claims under this program.

As a startup founder, it’s worth your time to take a closer look at this scheme and how it can benefit your company. Small and medium-sized British enterprises can claim 230 per cent of eligible R&D costs in tax credits.

These credits can help offset the corporate tax a small company owner pays every financial year. Even loss-making companies can claim 14.5 per cent of “surrenderable” losses to offset tax liabilities.

A closer look and thorough due diligence could help you streamline your tax costs and boost profits.

Hire professionals

Tax professionals and R&D tax credits specialists can help you use this scheme to its full potential. Online platforms such as Tax Cloud help you identify eligible costs, estimate your R&D expenses, file a claim, and speak to an expert.

As a small startup, an easy-to-use and affordable online platform can help you claim tax credits without the need to hire an army of lawyers and accountants.

A professional service can help you make the claiming process faster and easier, so you can focus on building the company.

Invest for the long-term

In his critically acclaimed podcast Masters of Scale, LinkedIn co-founder and Greylock partner, Reid Hoffman, said there are two ways to scale a startup – the easy way and the hard way.

The difficult way to scale a startup is to create a product and invest a lot of time and money into marketing it. Your efforts in marketing will help you create revenues that can ultimately be used to improve the product. In other words, you invest in creating demand.

Reid believes a better approach is to invest in the product so that demand flows organically. Time, effort, and money spent on research and development will help you create a product or service that is miles better than anyone else on the market.

These investments in R&D and technical experiments do not have instant payoffs, but they help you create self-sustaining demand in the long-term.

With the government’s R&D tax credits scheme, the costs of investing in science and technology are minimised. These credits support your efforts to make improvements and redefine your products.

Ultimately, the intellectual property and experience your team gains from R&D projects will form the base of your competitive advantage.

These are long-term, durable assets that will generate demand and profits, helping you grow from a tiny startup to a multinational behemoth. Take advantage of this scheme to grow your business over the long-term.