How far back can you claim R&D Tax Credits?

How far back can I claim R&D Tax Credits?

In short – Most companies will be able to go back two financial years. With an average SME business R&D Tax Credits claim being £60,000 per year, this can be a huge boost to your company finances. 

A common question that is asked regarding R&D claims is how far can you go back? The R&D tax credits SME, ERIS and RDEC schemes are all based on an adjustment of the Corporation Tax payable or a repayable credit.  The filing deadline for company accounts is 12 months after the financial year end. The filing deadline for making changes to company tax returns is 12 months after the filing deadline. This means you have, in total, 24 months after your company year-end to make changes to your accounts that affect Corporation Tax. This gives you two years of retrospective R&D Tax Credits claims. 

For example, for a company with a financial year end of 31st December 2021, the years that can be claimed or retrospectively adjusted are 2018/19 and 2019/20.

The 2021 financial year’s R&D Tax Credit claim would be processed in the 2022 financial year when accounts are filed as part of your annual financial cycle. 

Since 2023 there is now a requirement for new R&D claim, or having not made a claim in the last three years, to pre-notify HMRC of a companies intention to make an R&D claim. Failure to notify HMRC can result in claims being invalid, even if they are made within 24 months of the year end.  

Shortening or Lengthening the Financial year

We noticed there were more companies extending or shortening their financial years, due to the COVID-19 pandemic or for other reasons. Whether you change your financial year to 6 months or extend it to the maximum 18 months, the ability to make tax changes still applies for two years past the financial year end. As a result, in certain circumstances with lengthened years the claim could go back beyond the two calendar years. 

Other factors affecting a two-year retrospective claim

If you incorporated a company on Companies House and the company remains dormant for a year or two before you start actively trading; you cannot claim R&D Tax Credits for the dormant period.  

In truly exceptional circumstances the company may be allowed to go back further than the two years, but this is very rare and details of the circumstances under which this might be possible are detailed in Statement of Practice 5 (2001) – GOV.UK (www.gov.uk). Paragraph 10 details circumstances under which the Commissioners for HMRC will admit claims which could not have been made within the statutory time limits for reasons beyond the company’s control. This would include, for example, cases where: 

• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief. 
• the amount of a profit or loss depended on discussions with an inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents. 

As mentioned, there is now a Pre-Notification process for companies making their first claim, or have not claimed R&D tax Relief for 3 years, or in certain circumstances claimed after 1st April 2023. This requires a company to inform HMRC through a portal that that they intend to make a claim. This can be done from the first day of the accounting period to six months after the accounting period ends. Failure to do so may result in any subsequent R&D claim being rejected by HMRC.  

If you’re looking for additional help with your R&D Tax Credits claim, please contact us.