Accountants for deep tech and hardware startups.

Deep-tech companies have long development cycles, spend heavily on materials and prototypes, and often combine grant funding with an R&D claim.

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We act for UK deep-tech, engineering and hardware startups. Our work covers R&D claims that include consumables used up in development, claims on grant-funded work (grants no longer restrict relief under the merged scheme), whether prototypes and equipment count as capital or day-to-day costs, and SEIS and EIS for your investors.

Two changes to R&D relief for accounting periods beginning on or after 1 April 2024 matter to a grant-funded engineering company.

The first is that the restriction on subsidised expenditure no longer applies under the merged scheme or the intensive route, so grant funding no longer reduces your R&D claim. A grant towards running costs is still taxable income, so under the intensive route it reduces the trading loss that the cash credit is worked out from. The second is that a loss-making small or medium-sized enterprise (SME) spending at least 30% of its total expenditure on qualifying R&D can choose the intensive route (Enhanced R&D Intensive Support), which pays up to about 27p for each £1 of qualifying spend, compared with about 16p under the merged scheme.

A worked example of a grant-funded R&D claim

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

Intensity: £310,000 ÷ £480,000 = 64.6%, so the intensive route is available.
Intensive route: £310,000 × 186% = £576,600 surrendered, at 14.5% = £83,607 in cash.
Loss check: the £576,600 surrendered cannot be more than the trading loss. With total expenditure of £480,000 plus the extra deduction of £266,600 (86% of £310,000), the trading loss is £746,600 minus the company's income, so income for the year, including the grant, has to be £170,000 or less.
Cap check: £20,000 + (300% × £70,000) = £230,000. The credit is below the cap, so it is paid in full.

The grant does not reduce the qualifying costs, because neither the merged scheme nor the intensive route has a subsidised-expenditure restriction. It is taxable income, though, so it counts towards the £170,000 in the loss check, and income above that figure reduces the credit.

Illustrative figures. We run the calculation on your own numbers before anything is filed.

Run your own numbers

Where a hardware company's money goes

Consumables used up: Materials, components and substrates used up in development qualify. Materials that end up in something you sell do not qualify. On a hardware programme with many test builds the distinction makes a large difference to the claim, and it 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 build afterwards, so decide the treatment when the build is made.
Grant funding: Innovate UK and similar grants have their own reporting, eligible-cost rules and audit requirements, which differ from HMRC's rules for R&D relief. One set of books has to satisfy both.
Equipment and capital allowances: Lab and manufacturing equipment gets capital allowances instead of a straight deduction, and the rules on first-year allowances have changed recently. The date of a purchase decides which year the allowance falls in.

What changes the size of a hardware R&D claim

Intensity. Enhanced R&D Intensive Support is open to an SME (fewer than 500 staff, and turnover of no more than €100 million or a balance sheet of no more than €86 million, counting linked and partner businesses) that is loss-making and spends at least 30% of its total expenditure on qualifying R&D. It pays up to about 27p for each £1 of qualifying spend, compared with about 16p under the merged scheme, and a company that qualifies can still choose the merged scheme instead. Run the calculation before you choose a route. The costs of connected companies count towards the test, which matters for a spinout that sits within a group.

Where the work happened. For accounting periods beginning on or after 1 April 2024, payments to subcontractors for R&D done outside the UK are excluded, and so are payments for externally provided workers whose pay is not subject to UK PAYE. The company's own employees working abroad are not affected. The exception is work that needs conditions the UK does not have, such as geography, the environment, a specialist test facility or a legal or regulatory requirement, where it would be wholly unreasonable to replicate them here. Cost and the availability of workers do not count. Companies with a registered office in Northern Ireland that claim the intensive route are not subject to the restriction. Instead, their relief under that route is limited to €300,000 over three years for most businesses. Those with no trade in goods and no electricity market activity can opt out, which brings the restriction back and removes the limit. If a fabrication partner abroad does part of your development, check the position before the claim is prepared.

How we handle R&D claims SEIS and EIS

What we do for deep tech companies

The intensity calculation done first, so you claim on the route that pays more
Consumables, prototypes and test builds costed and evidenced through the year
Grant reporting and the R&D claim reconciled to one set of books
A decision on whether equipment and prototypes are capital or day-to-day costs
SEIS and EIS advance assurance before you pitch, and the certificates afterwards
Runway modelled against the dates grant payments are due

Common questions

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

Yes. Neither the merged scheme nor the intensive route has the subsidised-expenditure restriction that used to reduce grant-funded claims, so a company can have an Innovate UK grant and an R&D claim at the same time. A grant towards running costs is still taxable income, so under the intensive route it reduces the trading loss and can reduce the credit.

What counts as a consumable in a hardware claim?

Materials and components used up or transformed in the development work, including those used in versions that failed. Material that ends up in something you sell does not qualify, and nor does material still in stock. On a programme with many test builds the distinction makes a large difference, and it is far easier to evidence at the time than to reconstruct later.

Is a prototype a cost or an asset?

It depends on what happens to it. A rig built to test something and then scrapped is generally a development cost. Something built for use in the business for years is a capital asset and gets capital allowances. The treatment 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?

It can reduce the claim for the overseas part. For accounting periods beginning on or after 1 April 2024, payments to subcontractors for R&D done outside the UK are excluded, and so are payments for externally provided workers whose pay is not subject to UK PAYE. Your own employees working abroad are not affected. The exception is work that needs conditions the UK does not have, such as a specialist test facility or a legal or regulatory requirement, where it would be wholly unreasonable to replicate them here. Cost and the availability of workers do not count. Companies with a registered office in Northern Ireland that claim the intensive route are exempt unless they opt out. Check the position before the claim is prepared.