Top 10 Tax Tips for Fintech Startups
Date: 10 June 2025
Author: FINTECH Circle
FINTECH Circle hosted an insightful webinar titled, “10 Tax Tips for Fintech Startups”. The session was led by Susanne Chishti, Founder and Chair of FINTECH Circle, alongside guest speakers Peter Carville, Kanika Mishra Pathak and Robin Prince from MHA.
As fintech startups continue to redefine the boundaries of innovation in the financial services space, one area that often gets overlooked is tax planning.
While product development, fundraising, and growth usually dominate the founders’ agenda, getting your tax, R&D claims, VAT setup, and international structuring right from day one can make or break your long-term success.
An expert panel of leading tax specialists came together to share the critical issues fintech founders need to understand when laying the financial and regulatory foundations of their business.
Here’s a comprehensive overview of the key topics covered during the session:
1. Why R&D Tax Credits Are Changing and What It Means for Startups
The UK government recently announced the merger of the SME R&D scheme with the RDEC scheme, creating a unified framework for R&D tax credits. This change carries significant implications for fintech startups.
Previously, under the SME scheme, small companies could benefit from generous cash returns for eligible research and development activities.
However, under the new merged scheme, eligibility no longer hinges solely on who pays for the work; instead, it depends on who is responsible for the underlying technical uncertainty.
This means that startups must now demonstrate they are the initiators and owners of the R&D, not merely the funders.
If your fintech is part of a group or you’re setting up a tech subsidiary, it is vital to understand the risk and ownership structure of your development activities.
Without proper group elections or if the technical risk sits in a different part of the business, your claim could be disqualified. Founders must be strategic about which entity conducts the R&D and owns the associated risks.
2. Navigating the Pre-Notification Rules and Claim Process
Kanika, an R&D tax expert, highlighted a critical procedural point: the requirement to pre-notify HMRC of your intent to claim R&D relief. For startups planning to claim for their December 2024 financial year, the deadline to notify is June 2025.
Failing to submit this pre-notification renders your claim invalid. This procedural update underscores the need for founders to think ahead and engage tax advisors early in the year.
Startups also often make the mistake of describing R&D too broadly—like entire platforms—or too narrowly, such as individual features. HMRC wants to see detailed technical narratives that explain specific technological uncertainties and how the company sought to overcome them.
Simply describing new product features or user experiences doesn’t qualify. In the fintech sector, where software is a major component, you must show why off-the-shelf solutions weren’t viable & what technical innovation you brought to the table.
Areas like scaling systems, integrating complex APIs, or improving processing latency are common themes that do qualify. Importantly, there is no minimum claim threshold; even the smallest companies can benefit.
3. Should You Set Up a Tech Subsidiary? What Are the Tax Implications?
Many founders consider setting up separate entities to house technology or development functions. This can be beneficial from a commercial and operational perspective—bringing focus, attracting dedicated investment, or separating IP.
However, tax complications can arise. Peter, a tax advisor on the panel, explained that moving development activity to a new entity must be done carefully to preserve tax neutrality. If your original company holds valuable losses, those may not be transferrable to the new subsidiary.
Moreover, transfer pricing issues become increasingly important. Intercompany transactions must be structured and priced according to global tax standards.
If you’re shifting development work or IP between group companies or across borders, be prepared to justify your pricing and ensure it reflects real economic substance.
Setting up a subsidiary isn’t just a Companies House formality—it involves carefully balancing tax, operational, and funding considerations.
4. Making the Most of VAT: How Smart Structuring Can Save You Money
Robin, a VAT expert, noted that VAT is often one of the most overlooked areas by early-stage fintechs, even though it has a big impact on cost and cash flow.
Many fintech services are exempt from VAT, which means companies cannot recover the VAT they pay on supplier invoices. However, with careful structuring, companies can optimise their VAT position.
For example, forming a VAT group can allow UK-based entities to transact without charging each other VAT. Robin gave examples where restructuring service flows—for instance, with international developers—enabled fintechs to treat some services as intermediary or out-of-scope, thus recovering VAT or reducing VAT costs.
In some cases, even partial restructuring of the contract or the nature of the supply made a material difference to the bottom line.
If you’re delivering a mix of exempt and taxable services, clearly segmenting them in your contracts and invoices can allow you to reclaim more VAT. These tweaks are often low-hanging fruit but require an experienced VAT advisor to identify and implement correctly.
5. Expanding to the U.S.: Avoiding the Tax Traps
When it comes to international growth, the U.S. is often the first market UK fintechs target. But expanding across the Atlantic is not simply a matter of setting up a Delaware LLC. Peter emphasised that U.S. tax regime is highly complex and comes with state and federal obligations.
You need to choose the right entity structure—C-Corp vs LLC—based on long-term plans, IP ownership, and investor requirements. And once you’re operating in both the UK and U.S., your tax position becomes interdependent.
Transfer pricing rules will determine how much profit is attributed to each country and without robust documentation, you risk double taxation. One also needs to consider withholding taxes, regulatory compliance, employment taxes and sales tax (which varies by state).
Peter warned that copying your UK structure in the U.S. can lead to inefficiencies or unintended liabilities. Instead, companies should take a tailored approach and work with advisors who understand the full lifecycle of fintech businesses—from pre-seed through Series C and beyond.
Final Thoughts: Think of Tax as a Growth Enabler, Not Just a Cost
Throughout the discussion, the panel returned to a common theme: tax planning should be a core part of your growth strategy, not a box-ticking exercise. Proper structuring can support faster product launches, improve your funding options, and protect your business during due diligence.
Kanika noted that many R&D claims are denied simply because companies fail to present their work in a way HMRC understands. The work might be technically brilliant, but if you don’t articulate the underlying uncertainties and your innovative solutions clearly, the claim won’t succeed.
Ultimately, fintech founders need to get ahead of these issues. From claiming R&D relief to expanding overseas, from VAT grouping to setting up subsidiaries, each decision you make affects your future ability to raise funds, generate profits, and remain compliant.
With regulators becoming stricter and the rules changing quickly, your best defense is a well-informed and proactive tax strategy. Talk to specialists early, treat tax as part of your product roadmap, and use it as a tool to unlock value—not just avoid liabilities.
Watch the Full Webinar On-Demand below 👇👇👇
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