How Far Back Can I Claim R&D Tax Credits?
Introduced by the UK Government in 2000, the R&D Tax Credits incentive is designed to encourage innovation and increase spending on research and development (R&D) activities for companies operating in the UK.
Any company in any industry may be eligible for R&D Tax Credits. The key is that the company must be undertaking development activities that seek to achieve an advancement in technology. The project must contain a level of technical uncertainty for a competent professional, so if you faced questions that left you and your team scratching your heads to find a solution, that’s a good indication that qualifying R&D activities were taking place.
Am I too late to claim R&D Tax Credits?
If your team has been conducting work on potential products or services in recent years and have only just discovered R&D Tax Credits, you might be concerned that you’ve missed the opportunity to make a claim.
The good news is that it is possible to retrospectively file R&D Tax Credit claims with HM Revenue and Customs (HMRC) and you have two years from the end of your accounting period to submit one.
As an example, a company with a 31 December year end would be eligible to make retrospective claims for R&D tax relief for the periods ended:
31 December 2016 – time limit expires on 31 December 2018
31 December 2017 – time limit expires on 31 December 2019
What if I have already filed my company tax return for the period in which the R&D activities took place?
Provided you are still within the permitted time limits (see example above) then you can file an amended company tax return (CT600). This time the amended return will be filed including the claim for R&D tax relief.
What activities can be included in an R&D Tax Credit claim?
In terms of qualifying tasks, the following activities would be considered eligible for R&D tax credits:
- defining technical objectives;
- identifying uncertainties;
- feasibility studies;
- reviewing new and competing technologies;
- analysing, designing and developing the technology;
- producing technical specification or other documents to explain and support the R&D project and advancement;
- testing the product, process or software;
- planning and managing projects.
In addition, certain indirect support activities may qualify for R&D tax relief, such as:
- administration, finance, and personnel services specifically required to support R&D activities;
- training to support R&D
What R&D expenditure can be claimed?
You can claim relief on costs that have been expensed through the Profit & Loss account and, in certain circumstances, you can also claim capitalised expenditure (providing that the assets purchased have been classified as Intangible Assets). The main areas of costs that can be claimed are:
- staff costs (gross pay, employer's NI and employer's pension contributions);
- agency workers (externally provided workers);
- software license costs and
- consumable items (heat, light and power, and materials and equipment used or transformed by the R&D process).
What are the tax benefits of an R&D claim?
The effects of an R&D tax claim can result in reduced profits, reduced profits and a created loss, or an increased loss. There are three main types of tax benefit that arise from a successful claim for R&D Tax Relief these are:
- a payable cash credit;
- a rebate of corporation tax and
- an enhanced deduction that can be carried forward.
A successful claim could result in a cash injection of up to 33p for every pound spent on R&D into your business!
To learn more about Tax Cloud, and our online portal for R&D Tax Credit claims, click here
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