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How far back can you claim R&D tax credits?

How far back can you claim research and development tax credits?
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    If your business performs certain forms of research and development, then it’s eligible for tax relief in the form of tax credits. There are certain stipulations that go with this, so it’s helpful to learn about these tax credits to determine your eligibility.

    According to information from UK Government guidelines, companies can claim for R&D relief for up to 2 years from the end of the accounting period that’s relevant to the claim. It should be treated as a deduction from the business’s profits for that accounting period.*

    Moreover, the claim must be incorporated into the tax return directly or through an amendment.

    In this article, we’ll learn how far back you can claim R&D tax credits, as well as other information to make the process easier for you to understand.

    When does R&D begin in terms of relief?

    When it comes to defining when R&D begins for R&D relief, just remember that it begins the moment work starts. It ends when you solve a problem or stop working on it. For example, if you create a functional prototype, then that will be the end period – not when the product enters full production.

    What costs can you claim back with R&D relief?

    You can claim back a number of different costs associated with the projects classified as R&D. This covers the time that the project begins until the project is stopped or a new development or discovery is made.

    These costs include:

    • Staff costs: If you are paying for employees to work directly on an R&D project, your company can claim a portion of their salaries, wages, National Insurance contributions and pension funds contributions. You can also choose to claim any administrative or assistant employees who helped in the project.
    • Subcontractors: You can make a claim of up to 65 % of all relevant costs associated with using subcontractors in R&D work.
    • Software licence fees: You can also claim back any software licence fees and a portion of the costs for software used in R&D work.
    • Consumables: You can claim for the cost of certain consumable items used during R&D. This might include things like utilities and materials.

    What costs can’t be claimed through R&D relief?

    There are certain costs that aren’t suitable for R&D relief, so your company will have to pay for these directly.

    Some of these things include:

    • The production and supply of goods or services
    • Any capital expenses
    • The costs associated with land
    • The cost of patenting and trademarking
    • Rent prices

    Conclusion

    R&D relief is a great way to incentivise investment while ensuring you’re making a wise decision with funds. You’ve got a large window of opportunity to make these claims, so if you’ve missed this year’s window, then there’s still time.

    If you require assistance with filing a claim for R&D relief, or if you’d like help with any other tax-related matters, contact us today at WIS Accountancy.

    FAQs

    How long can you carry forward R&D credits?

    If you’ve got any leftover R&D credits, you can carry them forward for anywhere up to 20 years. You can also carry these credits back up to one year.

    How do you calculate R&D credit?

    The R&D credit is calculated by multiplying the percentage at a fixed base by the average gross receipts from the last four years.

    *Sources: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

    To find out who can apply and the benefits of R&D tax relief, check out our previous blog:

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