One of the most important aspects when making an R&D Tax Relief claim is timeframes. Not only are there strict deadlines, but depending on the circumstances of a business there is an optimum time to make a claim. The last thing you want is for a client to miss out on maximising their R&D Claim, or even worse miss out on claiming altogether!
Let’s find out those all important dates, and make sure your clients never miss out on money that belongs back in their business.
WHAT IS THE DEADLINE FOR MAKING AN R&D CLAIM?
The hard and fast deadline for making a claim is 2 years AFTER the end of the accounting year in which the company incurred the costs. If we pass this date it’s game over….the money has gone.
So, let’s take a look at the exceptions to the rule, as these could come in handy for your clients one day.
WHAT ARE THE R&D CLAIM DEADLINE EXCEPTIONS?
1. EXTENDED YEAR-END?
If a company has an extended year-end, then the filing date changes to the end of the extended accounting period. e.g. Sept 2019 year-end extended to March 2020 = 18 months period to March 2020. The deadline for claiming the costs incurred in the 18 month period to March 2020 is March 2022.
2. OOPS FILED LATE?
If a company files their tax return late, the hard deadline is not automatically extended, but HMRC can use their discretion.
e.g. Sept 2019 return was filed late in March 2021. HMRC has the discretion to allow an amendment beyond September 2021. Businesses can’t rely on this, but it’s worth being aware of for negotiating purposes if it ever happens.
3. GOT AN ENQUIRY WITH HMRC?
If HMRC has an enquiry open with your client, an amendment to the tax return would have to be made as part of the HMRC enquiry. In theory, the deadline is extended when an enquiry is open. However, again this is up to HMRC’s discretion, so the safest course is to always put the claim in before the normal deadline i.e. within 1 year of the original filing date to ensure HMRC does not refuse the claim. Why risk it?
Now we have the deadlines down, it’s time to look at the optimum time for clients to make their R&D claim, to ensure they are making that claim work in the best way for their business.
WHEN IS THE OPTIMUM TIME TO MAKE AN R&D CLAIM?
Knowing the optimum time to make an R&D claim depends on the bottom line; ultimately whether your client has made a profit or not.
MY CLIENT MADE A LOSS…
If your client made a loss, the answer is simple, make the claim as soon as the accounts are prepared and ready for filing. Your client wants to make the tax credit claim and get the money back and working for their business. There’s no benefit to come in postponing the claim. They need to get it done ASAP.
MY CLIENT MADE A PROFIT...
Now if your client has made a profit, it’s a little different. The biggest benefit will come by reducing the tax bill which is due 9 months and 1 day after their year-end. Let’s explore that a little with an example. EXAMPLE: Company A has a 31st March 2021 year-end. They have a taxable profit of £100,000 and are expecting a corporation tax bill of £19,000, due on 1st January 2022. However, Company A spent £50,000 on R&D. The R&D relief they are due is calculated as follows: £50,000 x 130% = £65,000
Company A can now subtract £65,000 from the taxable profits, to reduce the corporation tax bill.
The corporation tax due is calculated as follows: (£100,000 – £65,000) = £35,000 x 19% = £6,650.
Company A is making a saving of £12,350! Pretty cool huh?
The real benefit for Company A comes down to the timings and the impact on their cash flow:
SCENARIO 1 – CLAIM BEFORE TAX RETURN Company A completes the R&D claim prior to the tax return before 1st January 2022 (when the tax bill is due). As a result, they pay £12,350 less on 1st January 2022, keeping the cash in the business.
SCENARIO 2 – CLAIM AFTER TAX RETURN
Company A completes the R&D claim after the tax return, but before the deadline of 31st March 2023. As a result, they can claim a refund of £12,350 from HMRC, plus a tiny bit of interest.
You see, with R&D, it really is all about the timings!
Don’t let clients miss out
We always work with our accountant partners to ensure they are doing everything reasonably possible to maximise their client's R&D Tax Claim, including making the claim at the right time.
For DTX’ers with a potential R&D Tax Relief client you’d like to discuss please book a scoping call here.
Radish Tax by Diagnostax is a specialist R&D Tax Relief provider. Find out more about Radish Tax by Diagnostax.
Please note, as this blog was published prior to 1st April 2023, there is no reference to the changes which have been brought into place for the R&D tax relief schemes.
For expenditure on or after the 1st of April 2023, the following changes in rates of relief apply:
SME – the Enhanced Expenditure uplift rate has fallen from 130% to 86%; and the tax credit rate has fallen from 14.5% to 10% (exc. R&D intensive loss-making SMEs).
RDEC – the credit rate has increased from 13% to 20%.
Further, data and cloud computing costs can now be included within the claim qualifying expenditure calculation. Pure mathematics now falls within the scope of the relief.
For submissions on or after the 8th of August 2023, it is now required for an Additional Information Form to be submitted prior to submission of the R&D claim. For reference, please see our blog here.