Is There a Time Limit on R&D Tax Credits?

As we come out of the largest health crisis of the twenty-first century, it's become apparent that the effect that multiple lockdowns and a total shift in the way we work has had a huge impact on companies, especially SMEs. Some are strapped for cash, trying to stay afloat during this recovery period, where others could do with a little more money to fund their expansion and get them back on track after a period of minimal growth.

R&D Tax Credits are a great option for companies to increase their cashflow and fund innovative projects to grow. This government-backed tax relief scheme offsets some of the costs of eligible research and development (R&D) costs, allowing you to focus on innovation, not the bottom line.

What are R&D Tax Credits?

The scheme was created in 2002 to encourage innovative activity in the UK, stimulating the economy and putting the UK in competition with our high-achieving neighbours. It’s a top incentive for companies who are researching and developing new products, processes or services, allowing up to 33.35% of a company’s R&D costs to be recovered in either a cash repayment or in a reduction in Corporation Tax.

If your company has R&D projects which are furthering the fields of science or technology and which are overcoming technological challenges from the outset, then you will likely qualify for R&D tax credits.

How far back can I claim?

R&D Tax Credits can be claimed up to two years after the end of the accounting period during which the innovative activities took place. Companies generally apply for tax credits along with their annual tax return. However, as HMRC allows up to two years to pass, there’s plenty of time during which an application can be submitted.

Example

Let’s imagine a company was working on an R&D project across the entire year of 2020. Their accounting period ends on 31^st December, which means they have two years from this date to claim for the costs of the period. That means that the R&D costs incurred between January 1^st and December 31^st 2020 can be claimed up until 31^st December 2022.

Another example would be a company that conducted eligible R&D work between January and July in 2020, and that its financial year ended 30^th September. In this case, the company’s application deadline for these costs would be 30^th September 2022, even if the costs were incurred before the year-end.

This claim could be submitted directly when filing the Corporation Tax return or through an amendment to the return later.

What if I’ve already filed?

You can apply for R&D Tax Credits even if you have already filed your Corporation Tax return (CT600) for the financial year during which the R&D costs were incurred. So long as you submit your claim within two years from the end of the accounting period, all that is required is an amendment to the CT600.

We recommend companies make an application for R&D Tax Credits via an amendment of their CT600. It’s a handy shortcut because it speeds up HMRC’s processing time. This is because the filing is rerouted straight to an HMRC R&D specialist who will have a better understanding of your application, rather than going to someone at HMRC who may not have this specialism.

What projects are eligible for R&D Tax Relief?

Your company can claim R&D Tax Relief if you are pursuing an advance or appreciable improvement in science and/or technology. If a competent professional in the field was challenged with technological or scientific uncertainties, or the solution was not immediately apparent and required research to solve, then you will likely qualify for R&D Tax Credits.

It doesn’t matter if your project ultimately failed either; it’s more likely to qualify than a project which had guaranteed success. Essentially, the feasibility of your project and its outcome should not be easily deducible by a competent professional, or someone who has experience working in the specific field. HMRC is clear on their understanding of uncertainty; tinkering with an existing idea, product or process and routine maintenance and updating will not count towards R&D Tax Credits. Marketing and cosmetic fine-tuning are equally not qualifying expenditure.

Eligibility can be a fickle route to walk down, so we advise getting in touch with R&D tax specialists, such as ourselves, to ascertain the eligibility of your project. We can support your claim from start to submission, answer all your questions regarding eligibility and give you the best chance of success as well as a maximised claim.

What costs can I claim for?

R&D tax relief applies to specific everyday operational costs. Fixed assets, like buildings and land, will not qualify for a R&D tax claim but may be eligible for capital allowances.

Generally, the costs you can claim for are:

• Staffing costs
• Subcontracted R&D
• Externally Provided Workers (EPWs)
• Consumables
• Payments to volunteers for clinical trials
• Some types of software

Maximise your claim with Tax Cloud

Eligibility criteria and the red tape around dates and types of projects can make the application process a daunting prospect. There are plenty of hoops to jump through that many claimant's miss without the guidance of an expert R&D tax specialist, like Myriad Associates.

But hiring specialist tax advisors can get expensive. So, why not try Tax Cloud. Tax Cloud is a self-service R&D tax claim portal. It’s supported by the R&D tax experts at Myriad Associates who are on-hand to guide you through the entire claims process and check your claims report before it goes to HMRC. With Tax Cloud you’ll get expert advice, your report will be error-free, and your claim will win the maximum amount of R&D tax relief possible, all at a fraction of the cost of hiring an R&D tax consultant.  

Get in touch by calling 020 7360 4437 or using the contact form. One of our friendly team will advise you on the best way to proceed with your R&D tax claim.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud