Tax Strategies for Unconventional Start-ups: Navigating Unique Challenges in the UK

The start-up ecosystem has been changing in the last decade. This change is quite apparent in the UK landscape. Many start-ups with an unconventional business model or approach are flourishing, such as Freetrade, Pavegen, and Hokan, rewriting the rulebook. However, these start-ups are also facing some unique challenges. For example, one of the foremost challenges for Freetrade was to adhere to the regulations of the Financial Conduct Authority (FCA), especially when its business model was so disruptive. Some start-ups also have to deal with uncertain tax treatment and cash flow constraints during their initial months, but eventually, they triumph against all odds! So, let’s know the best tax strategies for such start-ups.

Research and Development (R&D) Tax Credits

Offered by the UK Government, these credits are for some eligible start-ups engaging in the development of new products, technologies or services. So, these start-ups can claim tax relief or cash credits for their qualifying R&D expenditures. Recently, the UK Government has cut R&D tax credits. However, this move is counterbalanced by announcing additional tax support for start-ups working in the field of artificial intelligence, fintech or life sciences and spending over 40% of their overall expense on R&D. 

Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

Under these investment schemes, investors keenly invest in start-ups carrying out a new qualifying trade. So, these are a boon for start-ups, especially when they find it tough to get adequate funds because of their unconventional business model or product. 

Capital Allowances

These are also known as plant and machinery and enable the start-ups to deduct the costs of their tangible assets such as equipment, machinery and business vehicles. These capital allowances are of various types Investment Allowance (AIA), First-Year Allowance (FYA), and Writing down allowance. 

Patent Box Regime

Founded in 2013, the Patent Box Regime is a lesser-known tax incentive considered ideal for start-ups. It enables them to enjoy a reduced corporation rate of 10% instead of 19% if they qualify for some specific conditions. One additional advantage of this patent box regime is that start-ups get tax relief during the patent pending period.
 
Furthermore, such start-ups also ensure to optimize their existing tax structure and leverage the tax allowances and reliefs that are available to them. Moreover, some start-ups also make the most of the Renewable Heat Incentive (RHI) scheme. Clearly, navigating the unique challenges is tough without losing focus on the business. So, if you are an entrepreneur running a UK start-up, choose to take the help of experienced accountants or tax consultants.