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A Founder's Guide to R&D Tax Credits:
Turning Innovation into Funding
Innovation costs money, but it doesn’t always have to come out of your runway.
Through the UK’s R&D tax credit scheme, the government rewards companies that invest in solving technical problems or developing new processes, products or software.
If you’re a founder building something new, there’s a good chance you’re already doing R&D, even if you don’t realise it.
In this blog we’ll cover:
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What counts as R&D (and what doesn’t)
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How the new merged R&D scheme works (from April 2024)
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What the claim process looks like
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Common mistakes founders make
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How to build R&D into your wider funding strategy
What Qualifies as R&D?
R&D doesn’t mean lab coats, test tubes and Bunsen burners.
HMRC defines it as work that seeks to ‘resolve a scientific or technological uncertainty’.
In plain English…If you’re creating or improving something in a way that wasn’t obvious, you might qualify.
Examples include:
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Building new software platforms or integrating APIs in a way not done before
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Creating a proprietary machine learning model or predictive engine
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Optimising system architecture for scalability or latency in ways not obvious to a competent developer
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Developing prototypes or testing new manufacturing processes
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Designing more efficient energy systems or materials
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Solving complex data or automation challenges
What doesn’t qualify:
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Routine bug fixing, maintenance or version upgrades
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UI/UX design or aesthetic changes
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Market research or commercial strategy work
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Adapting existing methods for a one off project
The New R&D Regime (April 2024 onwards)
From April 2024, the SME and RDEC schemes merged into a single, simplified structure.
Key points:
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Single rate of relief (for most profit-making SMEs, around 15-16% of qualifying spend, for a loss making SME with R&D intensive spend, the benefit can be up to 27%)
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Loss making companies can still claim payable tax credits
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Subcontracted work rules tightened, only claim if you control the project
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Overseas R&D generally excluded unless unavoidable
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Mandatory digital submission of the ‘Additional Information Form’ before filing the CT600 (Company Tax Return)
The goal: reduce abuse/fraudulent claims but keep supporting genuine innovation.
How the Process Works
1. Identify qualifying projects
Map out which part of your work involved overcoming technical challenges. HMRC have a useful tool to quantify qualifying projects:
2. Compile your costs
Include staffing, software, consumables, subcontractors, prototypes (this list isn’t exhaustive!)
3. Prepare the technical narrative
Explain WHY it was R&D, what uncertainty you faced, and how you solved it.
4. Submit your claim
Via the ‘Additional Information Form’ and then your CT600 (Company tax return), the advanced information must be submitted before your company tax return, otherwise the claim will be rejected.
5. HMRC review
They may query or request further information. There has been a significant amount of abuse of the R&D system, hence the reform to the legislation and claim process, so R&D claims are under more scrutiny than previously.
Common Pitfalls
❌ Claiming for non-qualifying work (“we redesigned our website..”)
❌ Poor documentation, no record of experiments, iterations, developer notes etc.
❌ Overclaiming on subcontractor or overseas costs
❌ Filing late or without the ‘Additional Information Form’
❌ Using advisers who inflate claims (as above, HMRC is cracking down hard on this!)
Why it Matters to Founders
R&D credits aren’t just a tax refund, they’re a cash runway lifeline in some cases.
Used properly, they can:
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Extend your runway
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Fund further product development
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Signal credibility to investors (“we’re innovating, and we know how to leverage tax incentives”)
How lupto Helps
At lupto, we work with founders to:
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Identify and validate qualifying R&D activities
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Prepare robust, defensible claims (that hold up to HMRC scrutiny)
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Integrate R&D planning into your broader funding and tax strategy
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Align R&D with SEIS/EIS and grant funding for maximum efficiency
The result: less risk, more reward, and a smoother cashflow profile as you scale.
Final Thoughts
The best time to think about R&D isn’t at year end, it’s as you’re planning your next project.
If you’re investing in innovation, don’t leave government funding on the table.
Handled correctly, R&D can be one of the most founder friendly ways to fuel growth.
Need support with R&D? Get in touch and we’ll guide you through the process.