The founder’s timeline, in the right order
On incorporation-plus-one-day: put the claim-notification deadline in the calendar for every accounting period that might contain qualifying work. The window runs from the period’s first day to six months after its end, and for first-time claimants it is absolute: the notification page has the dates worked through.
While the work happens: capture evidence as engineering hygiene, tickets tagged, failures noted, the technical lead’s reasoning written down. HMRC recommends records from the beginning of the project, and a startup’s records are usually its repositories: record-keeping shows how little is actually needed.
Before the year end: model the route and the cash. Loss position and intensity decide merged scheme versus ERIS. Payroll decides the PAYE cap. Dividends-versus-salary decisions change both the claim base and the cap, and are cheaper to adjust before 5 April than to regret after.
At claim time: the standard sequence, AIF before return, with the first claim built to be checked, because first claims are exactly where scrutiny concentrates.
The cash question, honestly
Startups claim for the cash, so the caps matter more here than anywhere. The payable amount is limited to £20,000 plus 300% of relevant PAYE and NIC. An exemption exists for companies creating or managing intellectual property within connected-party spending limits. And the two routes treat breaches differently: merged-scheme excess carries forward, while an ERIS claim above the cap is invalid. The worked mechanics are on the PAYE cap.
Two structural notes founders rarely hear early enough. Dividend-heavy founder pay shrinks the claim twice: dividends are not qualifying staff costs, and they generate no PAYE for the cap. And outsourcing development abroad, the default for many early teams, now runs into the overseas exclusions, which can remove most of the expected claim. Neither is a reason not to claim; both are reasons to model before budgeting.
Pre-trading: the honest asterisk
Some startups spend on R&D before any trade begins, and this corner is genuinely intricate. The long-standing rule treats pre-trading expenditure as incurred on the day trading starts. An election route exists on the ERIS side of the current rules, and the merged scheme’s own gate requires a trade chargeable to Corporation Tax. There is no plain-English gov.uk page for this under the current regime, which tells you the right move: if you are pre-revenue and pre-trade, take specific advice before assuming a claim, in either direction.
- HMRC, Tell HMRC that you're planning to claim R&D tax relief (claim notification), gov.uk
- HMRC, Apply for full claim advance assurance on your first R&D claim, gov.uk
- HMRC, CIRD140000 (the PAYE cap), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD90200 and CIRD111000 (pre-trading expenditure; trade requirement), Corporate Intangibles Research and Development Manual, gov.uk
Frequently asked questions
When should a startup first think about R&D relief?
The day the accounting period containing qualifying work starts, because the claim notification window opens then and closes six months after the period ends. It is a diary entry, not a tax project, but missing it makes the first claim invalid.
We pay ourselves almost nothing. Does the cash credit survive?
Model the PAYE cap before relying on it: £20,000 plus 300% of relevant PAYE and NIC. The £20,000 buffer protects genuinely small cases, an exemption exists for IP-creating companies within connected-party limits, and merged-scheme excess carries forward. But founder-dividend structures shrink both the claim base and the cap.
We have not started trading yet. Can we claim?
This is genuinely intricate: pre-trading R&D expenditure is normally deemed incurred when trading begins, with an ERIS-side election route in the current rules, and the merged scheme requires a trade chargeable to Corporation Tax. It is exactly the situation to take advice on early rather than assume either way.
Is advance assurance worth it for a first claim?
For an SME under the limits, turnover below £2 million, fewer than 50 employees, no prior group claims, often yes: it covers your first three accounting periods and disciplines the claim. It is voluntary, and it does not protect claims that depart from what you described.