Seed Funds Leverage: Can Research and Development (R&D) Costs Be Deferred Post-Funding?

The intriguing world of research and development (R&D) costs and how they intersect with your post funding strategy is as intriguing as a knowledge-packed adventure!

First, let's demystify the concept of (R&D).

R&D is nothing other than the secret behind innovation – a driving force that propels companies toward groundbreaking discoveries and game-changing products.

Whether you're revolutionizing healthcare, pioneering space tech, or emerging tech, R&D lays the groundwork for success.

Now, here's where things get interesting.

According to Deloitte, (SMEs) can claim a tax benefit of up to a quarter of their qualifying development costs if they are tax-paying or a third of their qualifying development.

For this purpose, an SME is broadly a company with less than 500 employees AND EITHER no more than €100m of turnover OR no more than €86m of gross assets.

You've secured that seed funding, catapulting your startup into the spotlight. But what about those looming R&D costs?

Can they be deferred post-funding, or are they an immediate payment to deal with?

Well, it's essential to understand how outside investment impacts your R&D tax credit claim.

While equity financing opens doors to new opportunities, it can also influence the funding avenues available to you. Enter HMRC, the gatekeeper of R&D tax credits, with its intricate classifications of financial connections between startups and investors.

If you find yourself in autonomous enterprises, consider yourself in the clear. You're free to claim the full extent of your R&D tax credits without interference from your investors. Cheers to that!

However, tread carefully if your financial ties veer into the territory of linked enterprises. HMRC's classifications hinge on factors like majority ownership and control over your business's affairs, which could sway your eligibility for R&D tax credits.

Partner enterprises offer a middle ground, with larger businesses owning a significant stake in your SME.

While this arrangement introduces shared assets and contributions, it's crucial to arm yourself with knowledge and guidance from financial experts to ensure you are entirely in the clear.

Join us for guidance that allows you to implement funding strategies with confidence. Whether you're leveraging grants alongside tax credits or plotting a course for future tax liabilities, our team is here to steer you toward success.