A pre-revenue company has no turnover, is typically burning through seed or SEIS/EIS investment, and is making a trading loss. All of those features are compatible with an R&D tax relief claim. Under the merged R&D scheme, a loss-making company that incurs qualifying R&D expenditure receives the 20% RDEC credit. If it meets the 30% intensity test, it receives the more generous Enhanced R&D Intensive Support rate of approximately 27% of qualifying spend. Neither scheme requires the company to have revenue.
Revenue Is Not a Requirement
HMRC's R&D relief rules do not require a company to have trading income to claim. The qualifying conditions relate to the nature of the R&D activities and the types of expenditure incurred, not to whether the company has yet started generating revenue.
There is one condition that sometimes creates confusion for very early-stage companies: HMRC requires the company to be a going concern and to intend to carry on a trade. A pure holding company or shell entity that is not actively pursuing a commercial purpose may have difficulty establishing this intention. But a company actively developing a product or technology for eventual commercialisation, even if it has not yet sold anything, will typically satisfy this condition.
The other qualifying conditions remain. The activities must involve genuine technical uncertainty, seek an advance in science or technology, and not be readily deducible by a competent professional in the field. Revenue status has no bearing on any of these tests.
Does SEIS or EIS Investment Affect the Claim
SEIS and EIS are investor-level reliefs. They give the investors in your company income tax relief and capital gains exemptions. They do not affect your company's entitlement to R&D tax relief.
The practical question that sometimes arises is whether SEIS or EIS investment constitutes a "grant" or "subsidy" that would affect R&D relief eligibility. It does not. SEIS and EIS are equity investments in your company; the money raised belongs to the company and is deployed as working capital. Equity investment is not a grant, not state aid, and does not interact with R&D relief.
The position is different for actual grants, particularly those from Innovate UK. See the section on grants below.
ERIS: the Most Important Scheme for R&D-Intensive Startups
Enhanced R&D Intensive Support provides an effective rate of approximately 27% of qualifying spend for loss-making SMEs whose qualifying R&D expenditure is at least 30% of total expenditure. Many pre-revenue startups meet this threshold naturally.
Consider a SaaS company spending £600,000 in a year. If £450,000 of that is qualifying R&D expenditure (75% of total), the company easily clears the 30% intensity test. The ERIS payable credit would be approximately £162,000. Under standard merged RDEC, the same company would receive approximately £97,200 net. The difference matters for runway.
To check your intensity ratio: calculate total deductible revenue expenditure for the period and check what proportion qualifies as R&D. If the ratio is at or above 30%, ERIS applies. Use our eligibility checker for a quick estimate, and read the qualifying expenditure guide to ensure you are including all eligible cost categories.
The PAYE Cap: What It Means for a Small Team
The payable RDEC credit is subject to a cap. A company can receive a maximum payable cash amount of £20,000 plus three times its total PAYE and Class 1 NIC liability for the period. This rule was introduced to prevent claims by shell companies with no genuine staff costs.
For a pre-revenue startup with two founders on modest salaries, the PAYE cap can reduce the payable credit materially. If the company has £30,000 of PAYE and NIC liability, the maximum payable credit is £20,000 plus (3 x £30,000) = £110,000. Any credit exceeding this can be carried forward to future periods.
Practical implications:
- Companies where founders have not yet put themselves on payroll may have very low PAYE liabilities, which tightens the cap.
- Companies using large amounts of subcontractor spend relative to staff spend will often find their qualifying expenditure exceeds the cap.
- The cap does not reduce the amount of RDEC generated; it reduces the amount that can be paid out in cash. Uncapped amounts can be set against corporation tax in a profitable future period.
Paying founders a market salary is worth considering for PAYE cap purposes
If founders are currently taking minimal salary to preserve cash, the PAYE cap may bite on an otherwise strong RDEC claim. A specialist can calculate whether increasing director salaries to a commercially justifiable level would improve the payable credit, taking into account the full cost of the salary increase including employer NIC.
Innovate UK Grants and R&D Relief
Receiving an Innovate UK grant alongside an R&D claim is common for pre-revenue companies. The interaction under the merged scheme is less restrictive than under the old SME regime.
Under the merged RDEC scheme, grant-subsidised expenditure is generally excluded from the RDEC claim. The portion of your qualifying R&D expenditure that is funded by the grant cannot also generate an RDEC credit. The remainder of your qualifying expenditure can still be claimed.
The practical effect is that you split your qualifying expenditure into grant-funded and self-funded portions and claim RDEC only on the self-funded portion. For a company with £400,000 of qualifying R&D expenditure where £100,000 is covered by an Innovate UK grant, the claimable expenditure is approximately £300,000.
The precise treatment depends on how the grant is structured and whether it is a notified State Aid grant. A specialist adviser will confirm the correct apportionment for your specific grant agreement.
What to Prepare for a Pre-Revenue Claim
The documentation requirements are the same as for any R&D claim. See the qualifying expenditure guide for a full list. For a pre-revenue startup, the practical priorities are:
- Payroll records showing gross salaries, employer NIC, and pension contributions for all qualifying employees.
- Time apportionment evidence, even informal records such as sprint boards, commit logs, or weekly task notes.
- Technical documentation that describes the project, the technical uncertainty at the start, and what was done to resolve it.
- The Claim Notification Form filed by the company tax return deadline if required for the period.
- The Additional Information Form, which must accompany the claim for any period from August 2023 onwards.
Pre-revenue companies often have stronger technical documentation than established businesses because product development is the entire focus of the company. That is an advantage when preparing the AIF.
Frequently Asked Questions
Yes. Revenue is not a requirement. A pre-revenue company that incurs qualifying R&D expenditure can claim under the merged RDEC scheme or ERIS. Loss-making pre-revenue companies receive a payable cash credit rather than a reduction in corporation tax liability.
No. SEIS and EIS are equity investments, not grants. They do not interact with R&D tax relief. A company can hold SEIS and EIS assurance and simultaneously claim R&D relief. The funding source of the R&D expenditure does not affect eligibility.
The PAYE cap limits the payable RDEC cash credit to £20,000 plus three times the company's PAYE and NIC liability. For startups with minimal staff costs, this can reduce the payable credit materially. Uncapped amounts carry forward to future profitable periods.
ERIS is available to loss-making SMEs whose qualifying R&D expenditure is at least 30% of total expenditure. Many pre-revenue startups meet this threshold because most of their spending is on R&D. ERIS provides approximately 27% of qualifying spend as a payable credit, materially better than the standard merged RDEC rate.
Yes, if the founder-director is directly engaged in qualifying R&D activities and receives a salary through the company payroll. Salary, employer NIC, and employer pension contributions, apportioned to qualifying time, are all eligible. Unpaid drawings or informal arrangements do not count as qualifying staff costs.
Check Whether Your Startup Qualifies for ERIS
Uplift Tax works with HMRC-registered specialists who assess pre-revenue and early-stage companies for R&D relief including ERIS eligibility. The assessment is free.
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