Knowledge Portal: Managing Business Finances and more

CHRIS BARNARD April 27, 2023

The research and development of new technologies has long been essential to the growth of UK-based tech startups, as when dealing with cutting-edge and emerging industries, teams must be able to facilitate organic demand in competitive markets by continually improving upon available products.

The research and development of new technologies has long been essential to the growth of UK-based tech startups, as when dealing with cutting-edge and emerging industries, teams must be able to facilitate organic demand in competitive markets by continually improving upon available products.

By making calculated investments into R&D projects, businesses can gain key advantages in terms of streamlining production processes, reducing costs and ultimately fine-tuning products to stay ahead of the competition. These are just some of the reasons why the UK government has historically provided incentives like R&D tax credits and grants to help account for the cost of vital R&D-related projects.

Despite the modern R&D tax credits system proving mostly beneficial to startups since its inception in 2000, the government has recently announced drastic changes to be implemented in April 2023. In short, startups investing in new technologies will be provided less tax relief, whilst larger businesses are expected to receive more support. For UK-based companies trying to navigate these new rules, this guide will cover a range of available R&D tax credits and advice to help tech startups claim relief.

What are R&D tax credits?

R&D tax credits are a tax incentive introduced by the UK government in 2000 designed to help SMEs (and some large companies) reduce some of the costs associated with the research and development of new technologies, with the aim of encouraging UK startups to increase ongoing R&D investments.

So, what is research and development? Or more appropriately how is this process viewed in relation to the R&D tax credits scheme? According to HMRC, only projects intended to make an advance in science or technology qualify for the R&D tax relief, theoretical and social sciences will not be accepted.

The project must also relate to the company’s registered trade, or one that the company intends to start up as a direct result of the research and development performed. HMRC will request that the business explain some fundamental aspects of the R&D project before being accepted, including:

How the project searched for an advance in science and technology
How the business had to overcome uncertainty related to the project
How the business attempted to overcome this uncertainty through R&D
Why the uncertainty could not be solved by a professional in the field

How are R and D tax credits changing?

What are R and D tax credits? (pre April-2023)

Looking into the previous R&D tax credits scheme in a little more detail reveals that the available tax relief offered to UK companies could be divided into two packages. For SMEs with less than 500 staff, turnover below €100 million and gross assets under €86 million, an extra 130% deduction rate was applied on top of the standard 100% to create a 230% total tax deduction applied to qualifying costs from yearly profits.

Additionally, startups meeting these criteria who record losses at the end of the tax year would be eligible to claim R and D tax credits worth up to 14.5% of their total reported losses for the year.

The second package was aimed towards larger entities, though as qualifying companies must only report turnover and gross assets above the previous threshold, smaller companies could still become eligible. Under this relief program, companies could claim tax credits equalling 13% of all R&D-related costs.

How do changes to R&D tax credits affect startups?

The changes due to be enacted in April 2023 are set to drastically lower the available SME R&D tax credits deduction rate from an additional 130% to only 86% of qualifying costs, equalling a total deduction rate of just 186% compared to the previous 230%. In practice, this means tech startups currently engaged in long-term R&D projects are set to see their costs increase by as much as 44%.

In addition, SMEs and startups reporting financial losses will see their claimable R&D tax credits drop significantly from 14.5% of total surrendered losses to 10%, again hindering long-term R&D projects.

Comparatively, larger companies who previously qualified for the 13% fixed R&D tax credits rate will see their claimable rate increase to 20%. These changes have been met with considerable criticism from across business sectors, with some studies suggesting that the average UK startup could lose between 30%-40% in relief that they previously received, equalling an estimated £100,000 per year.

The UK government has recognised some of this criticism, and in response have announced a new higher R&D payable credit rate for research and development intensive businesses. Loss-making SMEs with an R&D intensity of at least 40% will be eligible for a higher rate of SME payable credit taking effect for expenditure incurred on or after 1 April 2023, in continuity with the current payable credit rate, claimed as they currently do in their Corporation Tax return.

The government does remind SMEs that due to this change being legislated in a future Finance Bill, companies will only be permitted to claim such relief at a later date, after the legislation is in place. Companies making a claim for relief before this will receive the new 10% rate from 1 April 2023, though R&D intensive SMEs wishing to claim additional support are advised to delay their submissions or amend their claims once the legislation is in place, more info can be found here.

R&D tax credits: what can be claimed?

Though at present it appears unlikely that the government will reassess these changes, UK-based crypto startups can insulate themselves to some extent by ensuring that all ongoing research and development projects are appropriately labelled within the confines of HMRC’s official guidelines.

To do this, it’s vital that a small business understands which costs HMRC currently views as eligible for R&D tax credits and can answer the question: why is research development important to your operations?

The costs covered by R&D credits currently include:

Material costs – Any costs incurred for materials used specifically for R&D projects may be included in an R&D tax credits claim, this could be materials used to create prototypes, to perform trials or to manufacture a final product, though not if the product was later sold
Staff costs – Employee wages, national insurance/pension contributions and expenses directly related to R&D projects can form part of a claim, though these figures must be accurately apportioned, that is if a person spends 50% of their time working on an R&D project only 50% of their combined costs will become eligible for R&D tax credit relief
Utility costs – Any consumable utility used up during R&D, including water, electricity, fuel and gas, though only the amounts directly used during active R&D projects/processes/trials
Software costs – If a tech startup is required to buy a design or control program to perform an R&D project, purchasing and licensing costs may be included in their claim, though if the software is also used for non-R&D-related work these costs must be accurately apportioned

How to make a research and development tax credit claim

It is possible for startups to compile and submit a successful R&D tax claim themselves, though it’s advised that businesses hire a tax professional to ensure that all possible expenses are correctly and appropriately labelled to maximise the relief awarded, especially with the new regulations in effect.

When considering which expenses will qualify for R&D tax credits, startups must ensure that the work they’re performing is unequivocally centred around the advancement of science and/or technology. For startups in the crypto space, some blockchain research activities can qualify for tax relief, including:

Developing new blockchains
Developing new hardware/software wallets
Developing new nodes
Developing blockchain security solutions
Developing smart contract infrastructure
Developing new APIs

Research and development grants

In addition to R&D tax credits, the government does typically offer a range of grants to help fund certain R&D projects. Though there are no dedicated crypto-related research grants available at the time of writing, the government has announced plans to make the UK a global crypto asset technology hub in the coming years, so it’s worth checking the UKRI website for updates on crypto grant funding.

Summary

Despite the incoming changes to the R&D tax credits scheme having the potential to negatively affect UK-based tech startups, understanding how to appropriately classify research and development projects in line with HMRC guidance can help to ensure that companies don’t lose vital tax relief.

For startups requiring some assistance in learning how to account for R&D tax credits, or those who seek support in navigating the newly imposed rules, please contact our team of highly skilled crypto accountants to help guide your business in the right direction. Click here to book a free consultation.

FAQs on R&D Tax Credits for Tech Startups

What are R&D Tax Credits?

R&D Tax Credits are a government incentive designed to encourage innovation. They allow businesses to claim tax relief or cash repayments for qualifying research and development projects that seek to make a technological or scientific advancement.

Who can claim R&D Tax Credits?

Any UK company developing new products, processes, or software solutions may be eligible - not just large corporations. Many tech startups qualify without realising it, particularly if they’re solving complex technical challenges.

What costs can be claimed under R&D Tax Credits?

Qualifying costs include staff salaries, subcontractor expenses, software licences, and consumables used directly in R&D activities. You can also claim a portion of utilities and materials involved in development work.

How much can a tech startup claim?

The amount depends on your company size and expenditure. Under the current merged R&D scheme, SMEs can receive up to 27% in relief on eligible costs, either as a reduction in Corporation Tax or a cash credit if loss-making.

Do I need to make a profit to benefit from R&D relief?

No, loss-making companies can still claim R&D Tax Credits and may receive a cash repayment instead of a reduction in Corporation Tax, providing vital cash flow support for early-stage businesses.

Can Collective Concepts Accounting help me make a claim?

Yes, we can identify qualifying projects, calculate your claim accurately, and prepare the necessary documentation to ensure compliance with HMRC’s latest R&D guidance - maximising your return while reducing audit risk.

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Business rates: The most outdated tax in the UK?

By Chris Barnard • January 21, 2026

Few things frustrate British business owners more than business rates. If you ask someone running a shop, café, studio, or office, what they think about business rates, you’ll get the same answer. And it isn’t one we can publish! Almost all owners see business rates as outdated, unfair, and out of touch with how businesses work today. It raises an awkward question. In a country supposedly trying to encourage entrepreneurship, regeneration and innovation, why are we still relying on a tax that seems to actively discourage all three? A tax stuck in the past Business rates have existed in some form for centuries. They started as property taxes in 17th-century England, when most wealth was in land and buildings. Back then, it made sense: if you had valuable property, you were seen as successful and able to help fund local services. Value is now created through digital services, intellectual property, brands and platforms, and not just physical premises. Yet business rates still operate on the same basic principle. Where you are matters more than how you’re actually performing. There have been some attempts at reform but there has been no interest in conceding that the tax is no longer fit for purpose. Rateable values are still based on estimated rents. Revaluations do not happen often, and reliefs are added on top instead of being part of the system. In short, business rates have been adjusted, not redesigned. How much are UK businesses really paying? Many people are surprised by how much businesses pay in rates, especially compared to other business taxes. UK businesses pay more than £25 billion in business rates each year. This is one of the biggest business taxes, second only to employer National Insurance contributions. According to the Office for Budget Responsibility , business rates consistently raise more revenue than corporation tax from SMEs. The way business rates are calculated in England also stands out. For 2024 to 2025, the standard multiplier is just over 51p per pound, so businesses pay about 51p each year for every £1 of rateable value. This is especially controversial because businesses must pay rates even if they are not making a profit. A company can be losing money and still have a large rates bill. In contrast, corporation tax only applies to profits. The British Retail Consortium often points out that business rates hit physical retailers the hardest. Retailers make up about 5 per cent of the UK economy but pay over 20 per cent of all business rates. For many high street businesses, rates are their biggest fixed cost after wages and often cost more than rent. The physical presence penalty Business rates mainly penalise businesses for being visible and having a physical presence. The more established you are in your community, the more you usually pay. Top high street spots, warehouses near transport links, and city-centre offices all have higher rateable values. At the same time, digital businesses can earn a lot in the UK while working from cheaper locations or even abroad. There are some digital services taxes now, but they bring in much less than business rates and only affect a small number of companies. This means the system encourages businesses to keep their physical presence small and discourages investment in high streets, town centres and community spaces. It’s no wonder that our high streets have become like ghost towns. What do other countries do differently? The UK depends more on property-based business taxes than most other countries. In Germany, local authorities levy a trade tax based largely on profits , not property values. France has made big changes to its business taxes by reducing those based on property and focusing more on economic activity and value creation. Many countries check property values more often that the UK, which helps avoid sudden jumps in costs, and they limit yearly increases more strictly. The priority elsewhere is to focus more on what businesses earn, not just where they are. Is reform even possible? Business rates give local authorities a steady and reliable source of income, which makes them hesitant to change the system. However, just because the system is stable does not mean it is fair for those who pay. The current setup puts too much pressure on some sectors that are already struggling, while letting others grow quickly with lower costs. The main obstacle to reform is political. Any real change would shift who pays more or less tax. Some businesses would pay more, others less. It means big decisions which most politicians shy away from. Ignoring this issue has real effects, which we can see on our high streets. Time for a grown-up debate Business rates no longer match how business works in the UK. They discourage investment in physical locations, make competition unfair, and put too much pressure on traditional businesses. Whether the solution is a tax based on turnover or a mix of models, keeping things as they are is getting harder to justify. This is not a question of lowering taxes. The challenge is to find a system that fits a modern economy. Don’t pay too much Business rates might feel immovable, but there are reliefs, exemptions and reductions available. Many businesses either miss them entirely or do not realise they qualify. Small Business Rate Relief, retail and hospitality relief, transitional relief and discretionary local authority support can all make a real difference if they are properly understood and applied. The problem is that the system is complex, inconsistent and rarely explained in plain English. We can look at how much you are paying in business rates and ensure that you are not missing out on possible reductions.