I’m working on a client who capitalises their R&D costs each year. The costs are then amortised over a period of time.
A 3rd party R&D specialist prepares their R&D claim, and a large portion of the costs in the claim, are costs that have been capitalised in the current year.
In the past when I have encountered this, I would claim a deduction for the current year development costs (which would be shown as additions in the accounts), under FA 2004 s53. This meant the costs were being taken as a revenue deduction in the year incurred, and therefore able to be included in the R&D claim. Amortisation of these costs would be disallowed.
Unfortunately, the last 2 returns for this particular client, this has not been followed. The current year additions have remained on the balance sheet, and the amortisation claimed instead. At the same time, they have been included in the R&D claim.
Having only ever used the s53 provisions in these cases in the past, I’m not 100% certain this is the correct treatment. My interpretation has been that in order for the expenditure to be included in the current year R&D claim, the cost would had to have been taken as a revenue deduction in the current year CT600.
That being said, I have had a look at CTA 2009 s1044(5), and it states “Condition D is that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.”
The legislation only gives the condition that the expenditure is allowable, (which it is ,it just hasn’t actually been deducted - although capitalised, it is revenue expenditure for tax purposes, and is genuine R&D expenditure), rather than saying it has been taken as a deduction in calculating profits of the trade.
It has certainly given me enough doubt to ask the question, so wondered what others on AWeb think. Does a s53 claim have to be made, and so a current year deduction claimed, in order for the current year capitalised development costs to be included in a current year R&D claim?