How far back can you claim R&D Tax Credits?

📆 Claiming R&D Tax Credits for previous years

Research and development tax credits are a government initiative in the UK, whereby companies undertaking innovation can reclaim up to 27% of their R&D expenditure.*

The scheme was implemented to fuel research & development by offering financial support to innovative companies, allowing them to reinvest into the growth of their business at no extra cost.

Each R&D tax credit claim filed to HMRC is reflective of a company’s previous financial year. But if you’ve been conducting R&D for over a year – don’t worry!

The rule of thumb is that most companies can make an R & D claim for as far back as two years.

Here’s how this rule breaks down.

Both branches of the r and d tax credits scheme - SME and RDEC - are based on an adjustment of the Corporation Tax payable. The deadline for filing research and development tax credit claims is 12 months after the company’s financial year-end. The filing deadline for adjusting a business’ tax return is 12 months after the initial filing deadline.

Therefore, candidates for R&D tax relief have 24 months after their year-end to adjust accounts that determine Corporation Tax. This explains the window of two previous years.

To make it a little clearer, let’s run through an example below:

If your company has a financial year-end of 19th December 2021, the years that can be claimed (or retrospectively adjusted) are 2018/19 and 2019/20.

It’s worth noting that the 2021 financial year’s R & D claim would be processed in the 2022 financial year, when accounts are filed as part of your annual bookkeeping.

The research and development tax credits scheme can be difficult to understand if you’re new to claiming. Luckily, you don’t have to delve into the fine print.

Tax specialists at Claim Capital have over 20 years of combined experience in delivering successful r & d tax credit claims. If you’re considering making a r & d claim, we can assess your eligibility and maximise your tax benefit whilst you dedicate more time to growing your business.

⏱ Shortening or lengthening your financial year affects how far back you can claim R&D Tax Credits.

The unprecedented closure of businesses during the COVID-19 pandemic resulted in a surge in companies either shortening or extending their financial years.

And yes – it might sound strange, but the length of a financial year can be altered to a minimum of 6 months or a maximum of 18 months.

This influences a company’s ability to make changes to their tax filing, and thus affects their R&D tax relief. Under these circumstances, the ‘window of adjustment’ of two years still stands.

So, with lengthened financial years, you could claim R&D Tax Credits further back than two calendar years. And with shortened financial years, your deadline will fall earlier than two calendar years.

📋 Does anything else affect the two-year window of an r & d tax credit claim?

Yes!

The first is if you incorporated a business on Companies House and it remains dormant for 1-2 years before you begin trading. The Government defines a ‘dormant’ company as one that’s not doing business and isn’t receiving any income from external parties, such as investors. Understandably, you can’t file an R & D claim for the dormant period.

In very rare circumstances, a company may be permitted to claim further back than two financial years.

Paragraph 10 of the 2001 Statement of Practice (Vol. 5) details the conditions in which HMRC will admit claims which could not have been made within the statutory time limits, for reasons out of the company’s control.

This includes, but is not limited to, cases where:

“At the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief”.

“The amount of a profit or loss depended on discussions with an inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents”.

That covers all you need to know about one of the most frequently asked questions regarding research and development tax credits.

The vast majority of eligible companies will fall into the category of claiming R&D Tax Credits for the previous two years. But, it’s useful to be aware of the few instances that bend this rule.

If you have any questions regarding R&D tax relief, or are interested in filing – get in touch with our team of tax specialists at Claim Capital.

*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.