Nick Coleman, a lecturer at Newcastle University, developed a revolutionary microchip during a six-year research project.
Last year, he applied for a government Smart award and was told informally that he had been successful, subject to setting up a spin-off company.
"Everything stalled because of schedule 22 (of the Finance Act)," Dr Coleman said. He was told his tax liability could have been thousands or even millions of pounds. "I do know that I would have ended up with a legal bill trying to settle the thing in court."
He and his legal advisers spent all summer working with the Inland Revenue trying to develop a solution that would work around the legislation - "an extra expense I could have done without as every penny counts at this stage".
The company has been set back at least six months - a significant period in the high-tech sector, where microprocessor technology is soon out of date.
Dr Coleman is still waiting for the IR to advise if his solution is workable, despite its assurance to the sector that its officers would facilitate a speedy solution.