If you have been carrying out research and development work on new or improved products or services in earlier years and have only just stumbled across the R&D tax credit scheme, you may be concerned that you are too late to make a claim.
The good news is that this may not be the case as the rules allow for retrospective R&D tax credit claims to be filed i.e. after the normal 12-month filing deadline requirement for company tax returns. So you can go back and reopen previous tax returns and amend them to file R&D tax credit claims (see further below).
As a claim for UK research and development tax credits is made within your company corporation tax return ('CT600'). There is a two-year time limit for certain UK tax reliefs and the R&D tax credit is one of them.
How to claim R&D tax credits
A claim for UK research and development tax credits is made within your company corporation tax return (‘CT600’).
What if I have already filed my company tax return (CT600) for the period in which the qualifying R&D activities took place?
No problem - provided you are still within the permitted time limits (see further below) in which case you can include the claim for R&D tax relief within an amended CT600 corporation tax return.
How far back can I make a retrospective claim for R&D tax credits?
A company can make a retrospective claim for enhanced R&D tax credit relief for its financial accounting periods ending in the past two years (24 months).
Example: Late R&D tax credit claim
Say today’s date is 02 July 2022, a company with a 31 December accounting period end would be eligible to make retrospective claims for R&D tax relief for its accounting periods ended:
31 December 2020 – time limit for making a R&D tax credit claim expires on 31 December 2022
31 December 2021 – time limit for making a R&D tax credit claim expires on 31 December 2023
You can see that the time limit runs to two years after the relevant accounting period end in each case.
So up to 31 December 2022, it is possible for a company with a 31 December financial year end to make a claim for R&D tax credits on a research and development project that was carried out way back in January 2020! Good to know.
What if my period of account is longer than 12 months? What is the deadline?
It is common for companies to extend their accounting period or for newly incorporated companies to have their first period of account lasting more than 12 months.
In this case, a company will have to prepare and file more than one CT600 tax return as no single accounting period for corporation tax purposes can last for longer than 12 months.
So a new company that was incorporated on say the 26 September 2022 would typically have a default first period of account ended 30 September 2023 - its two tax returns would therefore be prepared as follows:
- CT600 1: first 12 months to 25 September 2023
- CT600 2: five days to 30 September 2023
In this case, its normal filing date for both returns will be one year from the end of the (long) period of account ended 30 September 2023 so due by 30 September 2024.
This means that an amended tax return could be filed for a late R&D claim up to 30 September 2025 being two years after the relevant filing date.
HMRC currently has proposals to amend the legislation to specify that the due date for late R&D claims is up to 24 months after the end of the relevant period of account rather than after the relevant 'filing date' (in case some companies do not receive a notice to file so are unaware).
Is it a problem filing an amended company tax return for a late R&D tax credit claim?
It is important to note that it is common for eligible companies to make retrospective R&D tax claims - especially when they have only just discovered that they qualify for the relief. Filing amended corporation tax returns does not ring any alarm bells with HMRC either - there are a number of tax reliefs (other than R&D tax relief) for which companies commonly take advantage of the statutory 'two year time-limit' t0 file amended returns.
We frequently assist companies (and their accountants) in drafting and filing amended CT600 tax returns for the exact purpose of filing late R&D tax relief scheme.
We had a real-life example in which a Founder of a software development company mistakenly believed that the activities of his company did not qualify, even though it had been operational for a number of years. With less than a month until the two year time limit elapsed, we managed to identify the qualifying project work and draft a technical report; quantify the qualifying expenditure and file the R&D tax relief claim with HMRC before the deadline.
The Founder was delighted to receive a cash credit cheque for over £100,000 four weeks later. If we hadn't had that conversation, it would have been too late to file a claim and that cash payment would have gone up in smoke!
Deciding on your financial period end as a startup - how does this impact on R&D tax credits?
As noted above, when you incorporate a new company, the financial period end normally defaults to the end of the same month (just in 12 months' time). It is possible to change your period of account to a more appropriate accounting period end commercially - the most common period ends being 31 December and 31 March.
You can either shorten or extend your financial accounting period (maximum of 18 months); however, by extending it, bear in mind that this will in turn push out the time line for when you can file your R&D claim - as the claim is made as part of your financial period end statutory accounts and tax return preparation process. You might prefer to secure the cash injection of an R&D tax credit claim much sooner (albeit the claim value might be lower if it relates to a shorter accounting period)!
What are the time limits if I am a Large Company and don't fall within the SME R&D tax credit rules?
The same time limits apply to the Research and Development Expenditure Credit ('RDEC') for Large Companies (or SMEs in receipt of grants) and the SME tax relief.
Get your R&D Tax Credit Advisor to help you
But don’t take this good news as a basis for “putting off” or delaying making your claim. There is still lots of work for us to do to help you maximise your claim and avoid any last minute rush!
Plus, the longer after the project ends that you delay, the more the facts and figures can become 'hazy' in the midsts of time, potentially resulting in a less optimal R&D tax credit claim.