If you’ve had a profitable year, then it can seem there is a certain inevitability that a sizeable Corporation Tax bill will soon be heading your way. In the case of a loss-making period, thoughts can often turn to making sure you can try and return a profit next year.
Each year as December 31st approaches it’s still surprising that many businesses don’t opt to explore all of the tax incentives available to help lighten the burden, which could even turn that Corporation Tax liability into a significant cash windfall. It’s estimated that each year anywhere between two and ten billion pounds worth of R&D tax relief goes unclaimed by UK businesses. Despite big increases in the number of companies benefiting from R&D tax credits each year, up 23% amongst SME’s last year, there are still a large number that will forego the opportunity to recoup their historical R&D spend, despite the reliefs available being more generous than ever.
Limited Companies have two years following the end of their period in which to submit an R&D claim, so for many companies the opportunity to recoup R&D expenditure incurred between 1 January 2013 and 31 December 2013 is shortly set to expire. If you’ve not previously submitted a claim for R&D expenditure incurred in this period then it’s not too late to act, a good R&D specialist will appreciate the sense of urgency and work with you to ensure the deadline can still be met. It’s always advisable to submit a full R&D claim package to HMRC well before the statutory time limit, but for whatever reasons this isn’t always possible.
In certain circumstances, it may be possible to look at submitting a ‘protective’ claim for relief to HMRC at the eleventh hour, to ensure the opportunity to recover any historical expenditure is not lost. HMRC will often accept these claims in instances where the claimant has only recently become aware that their activities qualify for relief, and does not have sufficient time to prepare the full claim documentation before the deadline, as to not do so would unduly penalise them. In these instances, a full claim package will still need to be prepared and submitted to HMRC, but this could be a potential option for business owners who’ve happened across the potential to claim R&D tax credits over their turkey leftovers (our phone usually rings at least once or twice on Boxing Day).
Protective claims enable the submission of a ‘placeholder’ claim while the technical report and accompanying calculations are being prepared, and these will typically need to be submitted to HMRC within an agreed time limit. The claim value will be capped at the level of the protective claim submission, and the claim value is only able to be revised downwards once the submission has been accepted by HMRC so it’s important that the submission factors in as many potential qualifying costs as possible, as the claim is not able to be revised upwards later. Protective claims still need to be submitted to HMRC within the statutory time limit of two years following the end of the period.
Despite recent efforts by HMRC to boost awareness of R&D tax credits, particularly amongst SME’s, each year many businesses conducting qualifying activities still miss out. Whilst late submissions can sometimes be considered by HMRC’s Specialist R&D Units, the number of instances in which these are accepted is incredibly small, and even then only when clear extenuating circumstances can be demonstrated.
If you’re approaching your year-end, and you feel your business has incurred costs developing a product process or service which is new or improved, or appreciably improving an existing offering, then you could recoup up to 1/3rd of your qualifying expenditure. Both profitable businesses and loss-making companies can benefit. Get in touch with one of our specialists to ensure you don’t miss out.