R&D Tax Credits for SaaS Founders: What You Need to Know (and What to Watch Out For)

R&D tax credits are one of the most valuable reliefs available to UK SaaS businesses — and one of the most misunderstood.

Done properly, they can provide a meaningful cash injection at exactly the stage where SaaS businesses need it most. Done badly, they can create stress, HMRC enquiries, and clawbacks years later.

As accountants specialising in SaaS, we see both sides of this regularly. This guide sets out what SaaS founders need to know about R&D tax credits, where claims usually go wrong, and how to approach them sensibly.

What R&D tax credits are (in simple terms)

R&D tax credits are designed to reward companies that are trying to resolve technological uncertainty.

In a SaaS context, that usually means building, scaling, or significantly improving software where the solution was not obvious at the outset.

This is important:
R&D is not about how hard the work was — it’s about whether you were pushing technical boundaries.

Typical qualifying activities for SaaS businesses include:

• Developing new core product functionality
• Solving performance or scalability problems
• Building novel architectures or algorithms
• Integrating complex systems where the solution was uncertain
• Attempting approaches that didn’t work and had to be abandoned

Routine development, cosmetic changes, or straightforward implementations generally don’t qualify.

Why SaaS businesses are often good candidates

Many SaaS companies are doing R&D without realising it.

Founders often think R&D credits only apply to deep-tech, AI labs, or biotech. In reality, HMRC explicitly recognises software development as a qualifying field — provided the criteria are met.

Early-stage SaaS businesses are often:

• Building before best practices are established
• Solving problems that don’t have off-the-shelf answers
• Iterating rapidly and learning through failure

That combination can make them strong candidates for R&D relief.

The biggest mistake: claiming too much, too loosely

The most common problem we see isn’t founders missing out — it’s overclaiming.

Many SaaS businesses are encouraged to claim for:

• All developer time
• All product work
• Entire sprints or teams

This is risky.

HMRC is not interested in whether the work was “innovative” in a commercial sense. They want to know:

• What technological uncertainty existed?
• Why a competent professional couldn’t easily solve it
• What attempts were made to overcome it

If a claim can’t clearly answer those questions, it’s vulnerable.

Documentation matters more than founders expect

HMRC enquiries are increasingly common, especially for SaaS claims.

When they happen, HMRC will ask for:

• A clear technical narrative
• Evidence of uncertainty
• Explanations written in plain English
• Consistency between the narrative and the numbers

Founders are often surprised that how something is written matters just as much as what is claimed.

Good claims are:

• Specific
• Conservative
• Internally consistent

Bad claims are vague, generic, or rely on boilerplate language that could apply to any software company.

Costs: what you can (and can’t) claim

For SaaS businesses, the main qualifying costs are usually:

• Developer salaries (and associated NICs and pensions)
• Employer contributions relating to R&D time
• Certain subcontractor costs (with restrictions)

But — and this is critical — only the portion of time spent on qualifying R&D can be included.

You cannot automatically claim:

• 100% of developer salaries
• Time spent on maintenance, bug fixes, or routine updates
• Non-technical roles like sales, marketing, or admin

Getting this wrong is one of the fastest ways to attract HMRC attention.

The timing trap: claiming too late or too early

R&D claims are made retrospectively, but timing still matters.

Claims must be submitted within two years of the end of the accounting period. Leave it too late, and the opportunity disappears.

At the same time, claiming before your accounting is properly set up can create problems:

• Misaligned payroll data
• Poor cost tracking
• Weak narratives that don’t stand up later

Ideally, R&D is considered as part of your year-end process — not bolted on afterwards.

Beware “no win, no fee” factories

This is worth addressing directly.

Many SaaS founders are approached by R&D boutiques promising:

• Huge claims
• Guaranteed success
• No downside

The risk almost always sits with the company, not the adviser.

If HMRC challenges a claim:

• The company repays the tax relief
• Interest may apply
• Penalties are possible

A cautious, defensible claim is almost always better than an aggressive one that keeps you awake at night.

R&D and SaaS accounting need to align

One overlooked issue: R&D claims don’t exist in isolation.

They interact with:

• Deferred revenue
• Losses carried forward
• Corporation tax calculations
• Investor reporting

If your underlying accounting isn’t solid, R&D claims can distort your numbers rather than help them.

This is why SaaS-specific knowledge matters. What looks fine for a traditional business can cause confusion in a subscription model.

The right mindset for SaaS founders

The best approach to R&D credits is not “How much can we claim?”

It’s:

“What genuinely qualifies — and how do we support it properly?”

When handled correctly, R&D relief:

• Improves cash flow
• Extends runway
• Reduces funding pressure
• Builds confidence in your numbers

When handled badly, it creates future problems that outweigh the short-term benefit.

How to approach R&D claims sensibly

R&D tax credits can be a powerful tool for SaaS businesses — but they’re not free money, and they’re not something to rush.

Founders who treat R&D as part of their overall financial system, rather than a one-off claim, get the most value and the least stress.

If you’re building a SaaS business in the UK, understanding this early — and setting it up properly — can save you a lot of time, money, and frustration later.