Whilst some start-ups are simply unaware of R&D tax credits, others are, yet they are still missing out. R&D tax credits are an incredibly valuable source of cash, especially for start-ups, so why are so many still missing out? Find out 5 reasons why start-up businesses are not claiming R&D below.
They are too busy
As a start-up, founders are usually too busy focusing on trying to grow their business and just don’t have the time to work on an R&D claim. The claiming process can take some time – you must work out your allowable expenditure, turn this into an R&D tax relief figure and submit this correctly on your company tax return. Time and effort should be put in to making a claim to ensure the greatest chance of success. What a lot of start-ups don’t realise is that they can reach out to a professional R&D consultancy who can help take care of the process and allow them to focus on their business.
They have a lack of eligible costs
When submitting an R&D claim, you can only claim back certain costs. In brief, eligible costs include staff costs, externally provided workers, subcontractors, consumables and software. Any costs that are not
within these categories cannot be claimed for. Unfortunately for start-ups, it’s very unlikely that founders will have incurred any of these costs. Founders can often go completely unpaid or work on low salaries during the early stages of the business, therefore whenever they do make profit, they usually use it to pay themselves before launching an R&D project. Although there is no minimum cost businesses must spend on a qualifying R&D project, without spending any money on eligible costs, a claim will not be successful.
They have used other grants of funding
One of the biggest misconceptions about R&D tax credits is that a business cannot make a claim if it has received grants or other funding. This is not just a common belief amongst start-ups but larger companies too. Some companies actually look towards other forms of funding, like capital funding, loans or subsidies, to help with their R&D project. It does depend on what the exact type of funding is, however, usually it does not impact a claim’s success. With that being said, if a business claiming R&D tax relief has received funding, it will affect the tax relief amount they will receive.
They think they are making a loss
Another misconception that unfortunately stops a lot of companies from securing cash back is that the business cannot be making a loss. This is not the case. Loss making companies can still claim R&D tax credits and receive cash back from HMRC. If a start-up has a surrenderable trading loss, it can surrender the R&D tax relief in exchange for a tax credit of up to 14.5% of the surrendered amount. Making a claim may just be a little more complicated for loss making companies, however, start-ups should not let this put them off as they can still receive a high value claim. This is an incredibly valuable source of income for companies that are still in the early stages.
They don’t know how to make a claim
The whole idea of preparing and submitting a claim can be quite daunting. To submit a claim, you will need to provide a breakdown of your qualifying R&D costs, the total qualifying expenditure and complete your CT600. Additionally, you’ll have to write a technical narrative to explain your project. As we previously stated, there are companies who work just to help others process claims and receive cash back, just like ZLX. Our team at ZLX take care of the entire process. There is minimal input from our clients and maximum output from us.
If you are looking for a company to help process you R&D claim, you can find out more reasons why you should choose ZLX here.