Startups love the R&D tax credit. It’s a great scheme – but it could be better. That’s what our new paper is all about – removing the bureaucracy that stops startups claiming, and making sure that the policy covers everything that startups actually do as part of their R&D process (not just what’s covered at the moment).
You can read our paper – Credit Where Credit’s Due here.
Or if you don’t fancy leafing through our wonderful 30 pages, we have 7 recommendations for improving the credit to take it from the metal-bashing age to a world-leading incentive for tech startups.
IMPROVING POLICY
1. ALLOW THE PURCHASE OF DATA SETS FOR TECH DEVELOPMENT
Because data isn’t classed as a consumable in the R&D process, the cost of data sets can’t be claimed under R&D tax credits. But it’s integral to R&D projects of many tech startups, including AI and machine learning. Let’s include this cost in the tax credit, providing greater incentive for cutting-edge innovation.
2. ALLOW THE FULL INCLUSION OF CLOUD SERVICES COSTS
Cloud services are used by the overwhelming majority of tech startups/scaleups. You can’t work with large data sets, train new algorithms, or deploy sensors at scale without the cloud. But our research tells us that there is a great degree of variation in whether these costs are included or accepted in tax credit applications. We need to make sure that startups have access to the compute they need to build world-beating products and services.
3. ALLOW FULL CLAIMS FOR UI/UX DEVELOPMENT WORK
Over 80% of startup respondents to our survey said they undertook significant amounts of UI/UX which they considered a vital part of their R&D processes. Right now, startups aren’t able to claim fully for the costs they incur building innovative solutions to the front end of their product. Tech firms won’t have a product unless it’s been tested properly with users; they need a clear understanding from HMRC that UI/UX work is critical R&D work, and should be included in the credit.
TACKLING BUREAUCRACY
4. PROVIDING BETTER FEEDBACK ON CLAIMS AND ENSURING THAT THERE IS CLARITY IN THE SYSTEM
What is true for all business life is true for tax credit applications: certainty is everything. Our members tell us feedback from HMRC on rejected or questioned claims is unclear. Whatever happens with the credit in the future, the ability to provide clarity about what it wants to see in tax credit applications will be crucial.
5. CONTINUING TO DEVELOP TECH EXPERTISE AT HMRC TO HELP RULE ON CLAIMS RELEVANT TO THE SECTOR
If R&D tax credits are to become more relevant and more effective for tech startups, HMRC’s expertise will have to catch up with the fast-moving pace of the tech sector. We are aware that HMRC is working on this. The further up the agenda, the better.
6. SUPPORT THE CREATION OF NEW SELF-REGULATORY BODY TO SET MINIMUM SERVICE STANDARDS IN THE R&D TAX CREDIT CLAIM MARKET
The tax credit adviser market can be a minefield for any company, but especially for startups who may be low on staff and undertaking the application for the first time. A self-regulatory body would give all actors the confidence of minimum standards of service to be accepted, and mitigate the other uncertainties of the process.
7. PROACTIVE PROMOTION OF THE CREDIT
Too many companies still don’t know about the credit, or find it hard to access information on how to claim. The Government has committed to boosting the UK’s R&D spend – championing the R&D tax credit should be front and centre of this objective.