Accountants for deep-tech startups

Deep tech: grant-funded, capital-hungry and badly served.

Long development cycles, real materials, grant funding and an R&D claim that most generalist accountants get smaller than it should be.

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The short answer

We act for UK deep-tech, engineering and hardware startups: R&D claims that include consumables genuinely used up in development, grant-funded work that no longer restricts relief under the merged scheme, the capital-versus-revenue split on prototypes and equipment, and SEIS/EIS for the investors funding all of it.

Deep tech is the sector most often told there is nothing here for it, usually by someone who last looked at the rules before April 2024. Two things changed that matter enormously to a grant-funded engineering company.

The first is that under the merged scheme the old subsidised-expenditure restriction is gone, so grant funding no longer cuts your R&D claim down the way it used to. An Innovate UK grant and an R&D claim are no longer in tension. The second is that the loss-making, R&D-intensive route pays roughly 27p in the pound against about 16p on the merged scheme, and a company spending most of its money on development usually qualifies for it.

Where the money actually goes

Where a hardware company's money actually goes

Consumables genuinely used up

Materials, components and substrates consumed in development qualify. Materials that end up in something you sold do not. On an iterative hardware programme that distinction is worth real money and is easiest to evidence as you go.

Prototypes and test rigs

Whether a build is a deductible development cost or a capital asset changes both your tax bill and your accounts. The answer depends on what happens to the thing afterwards, and it is a judgement worth making deliberately.

Grant funding

Innovate UK and similar grants have their own reporting, their own eligible-cost rules and their own audit expectations — which are not the same as HMRC's. Both sets have to be satisfied from one set of books.

Equipment and capital allowances

Lab and manufacturing equipment attracts capital allowances rather than a straight deduction, and the first-year rules have moved recently. Timing a purchase around a year end can be worth more than negotiating the price.

R&D relief in this sector

The two things that change the number most

Intensity. If your company is loss-making and qualifying R&D is at least 30% of total expenditure, you can claim Enhanced R&D Intensive Support instead of the merged scheme — roughly 27p per £1 of qualifying spend against about 16p. Most genuine deep-tech companies clear 30% comfortably, and many have never had the calculation done. Connected companies are aggregated for that test, which is where group-structured spinouts get caught.

Where the work happened. For accounting periods beginning on or after 1 April 2024, payments for R&D carried out overseas are excluded unless the conditions genuinely could not be replicated in the UK — and HMRC expressly disregards cost and worker availability as reasons. If part of your development runs through a fabrication partner abroad, that needs looking at before the claim is built, not after.

Grant funding, to say it plainly again, is no longer a reason not to claim.

How we handle R&D claims SEIS and EIS

A worked example

Grant funded, and claiming anyway

A loss-making UK hardware company developing a component. Total expenditure £480,000 for the year, part of it funded by an innovation grant. Qualifying R&D is £310,000 — engineering payroll, consumables genuinely used up across failed iterations, and test builds that were scrapped. PAYE and National Insurance: £70,000.

Intensity: £310,000 ÷ £480,000 = 64.6%, so the intensive route applies.
Intensive route: £310,000 × 186% = £576,600 surrendered, at 14.5% = £83,607 in cash.
Cap check: £20,000 + (300% × £70,000) = £230,000. Well clear.

Under the old rules the grant would have pushed a large slice of that spend out of the SME scheme. Under the merged scheme it does not, and this company would previously have been told — wrongly, but confidently — that its grant had already taken the benefit.

Illustrative figures, chosen to show how the arithmetic behaves. Your numbers will differ, which is exactly why the calculation gets done before anything is filed.

What we do for you

The job, end to end

The intensity calculation done first, so you claim on the route that actually pays more
Consumables, prototypes and test builds costed and evidenced through the year, not reconstructed at the end
Grant reporting and the R&D claim reconciled to one set of books
The capital-versus-revenue judgement on equipment and prototypes, made deliberately
SEIS and EIS advance assurance before you pitch, and the certificates afterwards
Runway modelled against the grant drawdown schedule rather than assuming it

Questions

Straight answers

We are grant funded. Can we still claim R&D relief?

Yes. Under the merged scheme the subsidised-expenditure restriction that used to cut grant-funded claims down has gone, so an Innovate UK grant and an R&D claim now sit alongside each other. This is the single most common piece of out-of-date advice we correct, and it has cost grant-funded companies a great deal.

What counts as a consumable in a hardware claim?

Materials and components genuinely used up or transformed in the development work — including the ones that failed. What does not qualify is material that ends up in something you sold, and material still sitting on a shelf. On an iterative build programme the distinction is worth a lot, and it is far easier to evidence contemporaneously than to reconstruct.

Is a prototype a cost or an asset?

It depends on what happens to it. A rig built to answer a question and then scrapped generally sits with the development costs; something built to be used in the business for years is capital, and attracts capital allowances instead. Getting it wrong changes both your tax bill and how your balance sheet reads to an investor.

Some of our fabrication is done abroad. Does that break the claim?

Possibly, for the overseas portion. Since April 2024 R&D carried out outside the UK is excluded unless the necessary conditions genuinely are not available here — and cost and staff availability are explicitly not acceptable reasons. Specialist facilities that simply do not exist in the UK can qualify. It needs assessing before the claim is built around it.