How Do Accounting Periods Impact R&D Tax Reliefs?

R&D tax credits are a type of Corporation Tax relief; therefore, it’s tied to your accounting period. Generally, accounting periods are twelve-month long. If you just found out about R&D tax relief, the good news is that you can claim the credit retrospectively as well. The deadline to claim R&D tax relief retrospectively is 24 months from the end of your accounting period.

How do we deal with accounting periods in our R&D tax relief software solution Novel?

Novel integrates directly with Companies House so when you set-up your organisation on Novel, you will notice that we automatically populate the claim periods which you can claim for. Claim periods relate to the accounting periods of the business and your R&D claim will generally be aligned with these dates.

For established businesses, you will typically see three claim periods: current, previous and past. Ensure that your claim period and accounting periods correspond to what is on Companies House. If they don’t, you can manually edit the information in Novel.

The current account period can be used to track ongoing R&D through Novel. With R&D tax relief you can claim up to two years worth of retrospective R&D which is why you will also see two past accounting periods displayed in Novel. This means, if you just have found out about R&D tax relief and feel like you’ve been doing qualifying R&D work for a number of years, you can still claim relief for some of that work.

If you’re in your first year of business, you may only see your current accounting period. The first accounting period is usually slightly longer than twelve months, as the accounting period defaults to finishing on the last day of the month. For example, if you incorporate a company on 15 March 2021 then the first accounting period will run from 15 March 2021 to 31 March 2022. You can see an example of this in the screenshot below.

As a start-up business, you should be on the lookout for any expenses and begin recording the work that could potentially qualify for a tax deduction in Novel as soon as possible, especially if you are close to filing your Corporation Tax Return (CT Return). This will help create strong supporting documentation to be submitted to HMRC. 

After this point, an accounting period will usually span 12 months. However, businesses can either shorten or extend their financial accounting period to better fit their commercial needs. Keep in mind that when you extend your accounting period, you also extend when you are able to file your R&D claim as the claim is tied to your statutory accounts and corporation tax return, thus delaying when you can secure the benefit derived from claiming R&D tax relief.

Why is there a time limit of two years from the end of your accounting period to claim R&D tax relief?

R&D tax relief is a type of Corporation Tax relief, therefore the two year limit ties into the deadline for amending your Corporation Tax return, which is typically 24 months after the end of your accounting period. You won’t be able to claim back money on any qualifying R&D once you reach the two year cut off period, regardless of how long your accounting period was.  

How many months should I be trading before I can claim R&D tax relief?

To claim R&D tax relief, you need to have one full accounting period. For example, Novel is a software start-up by Optimal Compliance that officially launched in March. From the image below, you can see that Novel’s upcoming accounting period is from March 2021 to March 2022, therefore we will only be able to claim R&D tax relief for work done once 31 March 2022 has elapsed. This date will change if we choose to either extend or shorten this accounting period.

accounting periods, tax relief, novel R&D tax relief software

No need to put off making your R&D tax relief claim

If you are in a similar position as Novel in terms of your accounting periods, don’t be put off from setting your organisation up on Novel. Instead, you can use the software to track your ongoing R&D so when it comes to making your claim, you have the project’s facts and figures all written down.

The benefit of this is that it will increase both the quality and integrity of the claim, as you’re able to note down the particular technological/scientific problems that you’ve encountered in real-time, as opposed to looking back retrospectively. This in turn enhances the information you provide to HMRC and avoids any last minute rush for paperwork or supplementary information.

What if I have already filed my corporation tax return (CT600) for the period in which the qualifying R&D activities took place?

The short answer is yes. It is possible to submit an R&D claim as an amendment to the CT600. However, do make sure to include the amended Tax Computation along with the amended CT600, otherwise HMRC may not process the claim. Legislation dictates the time limits for amending Corporation Tax returns; this is currently two years after the end of the company’s financial year-end. In other words, it is possible to claim R&D tax credits retrospectively up to two years after the accounting year end date.

Do your next R&D tax relief claim with Novel

Generate HMRC-compliant R&D tax relief claims without the complexity quickly and efficiently in-house as well as take advantage of its suite of features: education content, financial aggregators that make complex calculations for you, and R&D tracking feature. 

Preparing R&D tax relief claims hasn’t been easier. 

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