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HM Revenue and Customs Brief 70/07

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Issued 26 November 2007

Research & Development (R&D) tax relief – Claims time limit change

This Revenue and Customs Brief reminds companies that claims to Research & Development (R&D) tax relief for accounting periods ending before 31 March 2006 must be made by 31 March 2008.

Background

R&D tax relief allows companies to claim an enhanced deduction in respect of qualifying R&D expenditure. The amount of the enhancement depends upon the size of the company but generally small and medium companies can claim a 150% deduction and large companies can claim 125%, in respect of qualifying expenditure. The deduction reduces the taxable profits and therefore the corporation tax payable.

For an accounting period that ended before 31 March 2006 a claim to the enhanced R&D deduction could be made, amended, or withdrawn within six years from the end of the accounting period to which it related.

In some instances the enhanced deduction gives rise to tax losses and in certain circumstances small and medium companies can surrender these in return for a payable tax credit. Claims to the payable tax credit must be made, amended or withdrawn by inclusion in the company’s tax return or amended return. This means that the time limit for making payable tax credit claims is the same as that for making or amending a company tax return, and this is generally two years from the end of the accounting period. This time limit is unaffected by an open enquiry.

In a move to simplify the claims process it was decided to align the time limits rules for claiming R&D relief across the various R&D schemes.

This was done in Finance Act 2006 which introduced amendments to the existing claims rules. As a result, for accounting periods ending on or after 31 March 2006, all claims to R&D tax relief, including vaccine research relief, must now be made in a tax return and are subject to the normal Corporation Tax Self Assessment time limits for making, amending and withdrawing claims.

When the time limits were changed it was decided to introduce a transitional period to give companies time to make their enhanced deduction claims for past years. The transitional period covers accounting periods ending after 31 March 2002 but before 31 March 2006 and runs until 31 March 2008.

This means that all claims to R&D tax relief for the accounting periods covered by the transitional period must be made by 31 March 2008.

What companies need to do now

HMRC is encouraging companies to start thinking now about any past year claims they need make, so that those claims can be put together and submitted well before the 31 March 2008 time limit.

Companies whose tax affairs are dealt with by the Large Business Service should approach their HMRC tax team or client relationship manager. All other companies should send their claims to the Specialist R&D Unit dealing with the postcode for the location of their main R&D activity. The following link provides information about the Specialist R&D Units and the postcodes they deal with.

HMRC sets up specialist units for R&D tax credit claims - http://www.hmrc.gov.uk/randd/special-units.htm

Inspectors in both the Large Business Service and the Specialist R&D Units are able to provide comprehensive help and advice to companies who are thinking of putting an R&D tax relief claim together. Companies are encouraged to make use of this service so that accurate and timely claims to relief can be made.

Close to the 31 March 2008 deadline

If the 31 March 2008 is looming HMRC will accept tax returns, or amended returns for those accounting periods for which the company is still in time to amend its return, containing provisional R&D claim figures. The same approach will apply to companies making enhanced R&D claims for those accounting periods covered by the transitional period for which it is too late to submit an amended return.

However, a return or claim including a provisional figure should only be made once it is clear that the precise figure will not be available before the filing date or the expiry of the time limit relevant to the claim.

Where there is a need to include a provisional figure, the company is obliged to:
i. Include a reasonable estimate, to the best of its ability, taking into account all of the salient points and facts.
ii. Clearly identify which figures are provisional.
iii. State the reason(s) behind the inclusion of any provisional figure(s).
iv. State when the final figure will be made available.

Late Claims

Any transitional period R&D claims received after the 31 March 2008 time limit will be dealt with, whether made in a return or not, in accordance with Statement of Practice 5/01. While this does not specifically refer to R&D tax relief, the approach is a general one that HMRC adopts. The following link is to the text of SP5/01

CTSA: group relief: general: time limit: late claims - http://home.inrev.gov.uk/ctmanual/CTM97060.htm

When HMRC reviews late claims under the SP5/01 consideration will be given to whether the company could have made a claim within the time limit using a provisional figure.

Effect on other claims, eg group relief

For accounting periods ending before 31 March 2006, the longer time limit for claims for R&D relief does not mean that other claim time limits are extended. So if a claim for an enhanced deduction from profits is made outside the normal time limits for group relief, then any resulting increase in losses can not be surrendered as group relief, unless the claimant company is still in time to claim under normal group relief time limits in FA1998 Schedule 18 Paragraph 74(1).


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© Crown Copyright 2007.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



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Article Published/Sorted/Amended on Scopulus 2007-11-29 22:09:11 in Tax Articles

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