UK SaaS Founder Tax (2026/27)

Q How does R&D tax credit work for SaaS?

For accounting periods from 1 April 2024 there are two schemes. The merged RDEC gives a taxable credit of 20% of qualifying expenditure. ERIS, for loss-making SMEs whose relevant R&D spending is at least 30% of total relevant expenditure, gives an extra 86% deduction and a payable credit of up to 14.5% of the surrenderable loss (GOV.UK). Software work qualifies only if it seeks an advance in science or technology by resolving a technological uncertainty that a competent professional could not readily resolve; building a product from existing technology in a routine way does not qualify, however new the product is commercially. Every claim needs an additional information form submitted before or with the Company Tax Return, and first-time claimants (or those whose last claim was more than 3 years earlier) must send a claim notification within 6 months of the end of the period of account. See our R&D relief guide.

Q SEIS vs EIS for raising?

SEIS: for companies with a new qualifying trade (not carried on for more than 3 years), gross assets up to £350,000 and fewer than 25 full-time equivalent employees. The company can raise up to £250,000 in total under SEIS. Investors get 50% income tax relief on up to £200,000 a year, CGT exemption on qualifying disposals, and reinvestment relief on 50% of the investment (maximum £100,000). EIS: from 6 April 2026, up to £10 million in any 12 months and £24 million lifetime from venture capital schemes, or £20 million and £40 million for knowledge-intensive companies; gross assets no more than £30 million before the issue and £35 million after; fewer than 250 employees; normally within 7 years of the first commercial sale (Finance Act 2026 s.14; GOV.UK). Investors get 30% income tax relief on up to £1 million a year, or £2 million if at least £1 million goes into knowledge-intensive companies, plus CGT exemption and deferral relief. A company that has already raised EIS or VCT money cannot then use SEIS. HMRC offers advance assurance before you raise; many investors ask for it.

Q How does EMI work for hiring engineers?

Enterprise Management Incentives (ITEPA 2003 Schedule 5). From 6 April 2026 a company can grant EMI options if it has gross assets of £120 million or less and fewer than 500 full-time employees (previously £30 million and 250), with a company-wide limit of £6 million of options (Finance Act 2026 s.13). Each employee can hold options worth up to £250,000 granted in a 3-year period and must work at least 25 hours a week or 75% of their working time for the company. There is no Income Tax or NI on exercise if the exercise price is at least the market value at grant and the option is exercised within its 10- or 15-year period; any discount is taxed (GOV.UK EMI). On sale, gains can qualify for Business Asset Disposal Relief at 18% if the option was granted at least 2 years before the sale, without the usual 5% shareholding test. Some trades, including banking, farming, property development and legal services, are excluded.

Q When should we incorporate vs stay sole trader?

If you plan to raise outside investment or give staff equity, you need a company: SEIS, EIS and EMI are only available for shares in, or options over, a company, and investors expect a share structure. A company also gives limited liability. Company profits pay Corporation Tax (19% up to £50,000, 25% above £250,000, marginal relief between), and money you take out is taxed again as salary or dividends, so compare the total. Registering a company online with Companies House costs £100 (£124 by post) (GOV.UK). Shareholders' agreements and articles are worth getting right before the first external round.

Q What's Patent Box and when does it apply?

A company that elects in pays Corporation Tax at an effective 10% on relevant profits from patents it owns or exclusively licenses, granted by the UK Intellectual Property Office, the European Patent Office or certain EEA states (GOV.UK Patent Box; CTA 2010 s.357BB). The profit qualifying is reduced by an R&D fraction where the company bought in the patent or paid connected parties for the R&D. Software as such is generally hard to patent in the UK, so pure-software SaaS businesses often have no qualifying patent; products combining software with a technical effect or hardware are more likely to. The election must be made within 2 years after the end of the accounting period.

Q How do we handle international tax?

(a) VAT on digital services: B2C sales of digital services to customers in other countries are generally taxed where the customer is, so you may need to register in those countries or use a scheme such as the EU non-Union scheme (HMRC guidance). B2B sales usually fall under the customer's reverse charge. (b) Permanent establishment: staff or dependent agents working abroad can create a taxable presence there. (c) Transfer pricing: transactions with your own overseas subsidiaries must be at arm's length. (d) US and other sales taxes have their own registration thresholds. (e) Pillar Two (15% global minimum tax) applies to groups with consolidated annual revenue of €750 million or more in at least 2 of the previous 4 accounting periods (HMRC Pillar 2 guidance), so not to most start-ups. Take advice in each country once you have staff or significant sales there.

Q What about employee share schemes vs simple equity?

(a) Shares acquired at a discount: an employee who gets shares for less than market value is taxed on the difference as employment income; NI is due too if the shares are readily convertible assets. Cheap at the very start, when the value is low, expensive later. (b) EMI options: no tax when granted or, within the rules, when exercised, so the employee pays only CGT on the growth when they sell. (c) Growth shares: a share class that takes value only above a hurdle, so its market value at issue is low; tax depends on getting that valuation right. Co-founders usually hold ordinary shares from incorporation; EMI is the usual route for hires.

Q What does exit look like tax-wise?

(a) Share sale: shareholders pay CGT on the gain. Business Asset Disposal Relief charges 18% on qualifying gains from 6 April 2026 (14% in 2025/26, 10% before 6 April 2025), up to £1,000,000 of lifetime gains; for 2 years before the sale you must be an officer or employee of a trading company and hold at least 5% of the shares and voting rights (plus a 5% economic interest), or hold EMI shares from an option granted at least 2 years before the sale. Above the limit, or without relief, the rate is 18% or 24% (GOV.UK). Investors' Relief, for qualifying investors in ordinary shares of unlisted trading companies, also charges 18% from 6 April 2026, with a lifetime limit of £1 million since 30 October 2024. (b) Listing: CGT applies when shares are later sold. (c) Members' voluntary liquidation: distributions are normally capital, so BADR can apply if its conditions are met, subject to anti-avoidance rules. (d) Earn-outs and roles with the buyer: how payments are structured decides whether they are capital or employment income, so take advice before heads of terms.