A common question that arises when businesses owners talk about R&D Tax Credits is “How far back can I claim R&D Tax Credits?”. Understanding the time period for which you will be able to claim R&D Tax Credits is paramount, as it means that you will not have the risk of missing out on claiming back money that you are entitled to.
- How far back can I claim and what’s the deadline?
- What are Accounting Periods for the purpose of the scheme?
- What if I am a startup wanting to claim R&D Tax Credits?
- What if I have already filed my accounts for the year?
- How much time will it take for HMRC to process my claim?
- How to get started with your claim
R&D Claim Time Limit
See the below diagram:
As R&D Tax Credits are a form of Corporation Tax Relief, the deadline for amending the businesses Corporation Tax Return is 24 months after the end of it’s accounting period, hence the 2 years backdating available for the scheme. This same time window applies whether your business is profitable or loss-making and due to receive a payable R&D cash tax credit. The fact that R&D Claims can be backdated is something that is often overlooked by many businesses, as it means that when they are making an R&D Tax Credits claim, they can often end up with more money than they believed they were eligible to receive. Before your accounting period comes to an end, you will be required to submit your R&D Tax Credit claim for any qualifying expenditure that has been incurred during that accounting period.
What are Accounting Periods for the purpose of the scheme?
An accounting period is the time frame used for businesses to prepare financial statements, and compile financial performance reports in order to position to external stakeholders. Accounting periods can generally be after 3, 6 or 12 months, and will usually coincide with a businesses fiscal year (financial year), which is why the most common used accounting period is 12 months (Jan 1st to Dec 31st, aligning with the calendar year.
A lot of businesses will follow accounting periods of 3 to 6 months due to wanting to end the financial year on a high note with their fourth quarter, in order to act as a positive sentiment. A financial year will be decided when a business is incorporated, and can not change yearly. Businesses can choose between The Calendar Year that follows the Gregorian Calendar (1st January to 31st December), Fiscal Year which is an annual period that does not start and end based on the Calendar year, and a 4-4-5 Calendar Year which is divided into 4 quarters, with each quarter consisting of 13 weeks.
Many businesses will choose different financial years due to seasonal fluctuations, the best example for this would be businesses operating within the Retail sector, due to generating a lot of revenue around the festive period, if they filed their accounts before December then they may not be able to prove to investors the highlight of their calendar year, and struggle to prepare their financial revenue during these busy times.
The most commonly used accounting period is generally 12 months, so an example of how backdating your R&D Tax Credits claim works is if you file your accounts on the 31st of March every year, then you will have until 31st March 2022 to make a claim for the accounting period that came to an end on the 31st of March in 2020. The deadline for your backdated claim would be at 00:00 on 31st of March 2022, from this time onwards you will not be able to recoup the expenditure incurred on qualifying R&D activities between the 1st April 2019 and 31st of March in 2020.
What if I am a startup wanting to claim R&D Tax Credits?
When it comes to start up businesses, it can be different for you in terms of your accounting periods. When your business is first registered with Companies House, the incorporation date is set to that registration date, and the first accounting period will be set as 12 months from the end of that specific date, this can often not be optimal for the business itself due to the nature of the industry it is in, so businesses will move their accounting year end-date to one that is better suited to them.
Businesses within the UK will often change their end date to align their accounting period with the tax and fiscal year, but in the first year of trading for a new business, the first two accounting periods as a business for which are eligible for you to claim R&D tax credits may not be two years.
To ensure that the R&D Tax Credits scheme is inclusive for start-ups, if you have started an R&D project before the earliest time period you are eligible to claim for, but you are still working on this project to overcome scientific or technological uncertainties in your last 2 accounting periods, you will still be eligible to claim for any qualified expenditure incurred in the project for these periods.
What if I have already filed my accounts for the year?
If you have already filed your accounts for the financial year, as long as you are still within the permitted time limit then you can amend the tax return and it will be filed including the R&D Tax Claim. It does not matter if you have already filed for the year, and it is often recommended that businesses should submit an R&D Tax Credit claim via making an amendment of their CT600. This is because it actually speeds up HMRC’s process for processing the claim, meaning that you will receive your money a lot quicker, as the filing is rerouted straight to a HMRC R&D Tax Credits officer who will have far better understanding of your application, rather than going to a staff member at HMRC who does not specialise in this.
How much time will it take for HMRC to process my claim?
HMRC aims to process all R&D Tax Credit claims within 28 days, but it can take up 90 days for HMRC to process a claim, especially in busy periods of time. HMRC can launch an investigation into claims that may be incorrect, and if this is the case then it can take longer. This is why it is always optimal to consult with an R&D Tax Credits specialist.
How to get started with your claim
To find out how Green Jellyfish can assist you with your R&D Tax Credits claim, contact us today or click here.