For Series A–C founders & CFOs in AI/ML, SaaS, FinTech, Deep Tech & Health‑tech
You’re growing fast. Investors love the metrics. Then tax hits — and suddenly you’re burning cash flow you didn’t forecast, or diligence stalls.
Here are the 7 most common traps for £1M–£10M UK tech companies, based on issues we regularly resolve during scale‑up and pre‑funding.
Quick Reference
- ERIS = Enhanced R&D cash credits for loss‑making startups.
- OSS = EU One‑Stop Shop (single VAT return for EU sales).
- PE = Permanent Establishment (taxable presence overseas).
- IR35 = Off‑payroll working rules (contractors taxed as employees).
1. ERIS Cash Disappears
When it bites: You drop below 30% R&D intensity
What happens: You lose the 14.5% payable R&D credit
Typical hit: £80k–£250k cash gone
Monday action: Pull last 4 quarters of payroll and R&D spend. Calculate R&D %. If <30%, adjust UK payroll strategy or contact your accountant immediately.
Learn more: R&D Tax Credits Service
2. PAYE/NIC Cap Triggers
When it bites: UK payroll is too low
What happens: ERIS cash capped at £20k + 300% of PAYE/NIC
Typical hit: £40k–£120k left on the table
Monday action: Model payroll 12 months ahead to stay above the cap. This one is avoidable with forward planning.
Learn more: R&D Tax Credits Service
3. VAT Registration Surprises
When it bites: UK turnover >£90,000 (rolling 12 months), EU OSS >€10,000, or US economic nexus triggered ($100k–$500k per state) without noticing.
What happens: Back-tax + penalties if VAT/sales tax wasn’t collected from customers.
Typical hit: Back-tax + penalties if VAT/sales tax wasn’t collected from customers.
Monday action: Set automated threshold alerts on your finance dashboard. Register for UK VAT, OSS, or US state sales tax before you breach the threshold, not after.
Learn more: VAT Services
4. IR35: Medium/Large Company Rules Apply
When it bites: Your organisation hits 2 of 3: turnover >£10.2M, balance sheet >£5.1M, >50 staff.
What happens: Contractors reclassified as employees → you owe employee’s income tax + employee NIC + 13.8% employer NIC (typically 40–50% of contract value) + penalties.
Typical hit: £60k–£300k+ depending on contractor mix.
Monday action: Run IR35 status tests on all long‑term contractors now. Don’t wait for HMRC to flag it.
Learn more: IR35 Services
5. Permanent Establishment (PE) Risk
When it bites: Overseas co‑founder or salesperson signs contracts abroad.
What happens: Overseas corporate tax return + profit reallocation. (Not usually double‑taxed, but you face dual filings + foreign tax exposure.)
Typical hit: £50k–£250k (tax + advisory + remediation.)
Monday action: Complete PE checklist before any overseas hire or relocation. One conversation now saves months of remediation later.
Learn more: International Tax Services
6. EMI Window Closes
When it bites: Gross assets exceed £30M
What happens: No new EMI options (existing ones stay valid) → hiring and retention pain
Typical hit: Impact on recruitment/retention rather than immediate cash.
Monday action: Front‑load EMI grants before crossing the £30M threshold. This deadline is hard.
Learn more: Share Scheme Services
7. Corporation Tax Shock
When it bites: First profitable year
What happens: 25% CT bill due 9 months + 1 day after year‑end.
Typical hit: £200k–£1M+
Monday action: Forecast CT 18 months ahead. Use Patent Box + R&D relief to slash the rate. Don’t let this surprise you.
Learn more: Corporation Tax Planning
The Bottom Line
| ARR Stage | Most Common Leak | Cash Impact | Urgency |
|---|---|---|---|
| £1M–£3M | ERIS loss + PAYE cap | £100k–£300k | Quarterly review needed |
| £3M–£7M | VAT/OSS, US nexus, IR35 | £150k–£500k | Urgent (2–3 months to fix) |
| £7M–£10M+ | PE risk, EMI window, CT bill | £300k–£1M+ | Critical (3–6 months ahead) |
Find your stage. If any trap matches your current situation, act within the urgency window — don’t wait for diligence to surface it.
These issues frequently surface during Series B/C diligence and commonly delay rounds by 6–12 weeks or result in valuation adjustments of 5–15%.
Most founders don’t catch these until Series B diligence — when they become valuation negotiating points, not just tax bills. Map your exposure now.
If you’re uncertain on any of these seven, we typically resolve these issues on a fixed fee with the cash impact agreed upfront. A specialist review usually uncovers £80k–£400k in recoverable cash or avoidable penalties.
Full Glossary & References
ERIS (Enhanced R&D Intensive Support)
Extra cash credits if at least 30% of your spend is on R&D. Payable even if loss‑making. This is the most valuable relief for early‑stage tech. See our R&D Tax Credits Service for more detail.
→ HMRC R&D Relief Guidance
OSS (EU One‑Stop Shop)
A VAT simplification scheme that lets you file one return for all EU sales instead of separate returns per country. Mandatory if turnover >€10k. Critical for SaaS scaling into EU markets.
→ European Commission OSS Portal
PE (Permanent Establishment)
When HMRC or a foreign tax authority treats you as having a taxable office abroad — even without a physical office. Triggered by signing contracts, making management decisions, or regular presence. Review before any overseas hire.
→ HMRC International Manual: Permanent Establishment
IR35 (Off‑Payroll Working Rules)
Contractors taxed like employees if certain tests (control, substitution, mutuality of obligation) are met. Large companies (>50 staff, >£10.2M turnover) bear the compliance burden. See our IR35 Services for contractor status tests.
→ HMRC IR35 Guidance
EMI (Enterprise Management Incentives)
Tax‑advantaged employee share options (up to £250k per person, £30M company asset limit). No new schemes can be approved once you cross the threshold. Front‑load before scaling. See our Share Scheme Services.
→ HMRC EMI Guidance
Patent Box (IP Relief)
A corporation tax relief that applies a 10% effective rate (instead of 25%) to qualifying IP profits — patents, software, databases, trade secrets. Combines with R&D relief to dramatically reduce your CT bill on profitable tech. See our Corporation Tax Planning Service to model your exposure.
→ HMRC Patent Box Guidance
CT (Corporation Tax)
Currently 25% main rate (for profits >£250k), due 9 months + 1 day after year‑end. Use Patent Box (10% rate on IP profits) and R&D relief to reduce effective rate. Plan 18 months ahead to avoid surprises.
→ HMRC Corporation Tax Rates
Next Steps
Ready to map your exposure?
Most founders discover these issues in diligence. Don’t be one of them.
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