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R&D Claim

Capitalised expenditure / profit in year, losses b/f

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This is a 2-part question, both of which probably have simple answers ...

1. I have a client who capitalises in their accounts £270k of software development (£250k eligible for R&D). If I understand correctly, as they capitalised it they are only allowed to claim 100% RDA, rather than the 230% had the costs been expensed. Is that right?

2. They have b/f losses of £1m & CY profit of £800k. Am I right that any R+D has to be deducted from the profit before dealing with the b/f? Or can they use the b/f, then put in a claim for the R+D cash refund?

Thanks

 

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04th Jun 2019 12:12

1. Have a look at FA 2004 s53 (it's in CTA 2009 as well but I can't remember where). Essentially you can claim a deduction for CY additions and therefore allows you to include the costs in an R&D claim and claim 230%. Going forward you need to disallow the amortisation to compensate.

2. R&D deduction will have to be dealt with first then b/f losses.

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to Lone_Wolf
04th Jun 2019 12:26

Thanks, that’s what I thought/hoped.

On occasion, tax is logical!

Appreciated

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to Lone_Wolf
04th Jun 2019 14:40

One needs to ask the question why it has been capitalised. If it's on the balance sheet because it's capital then you can't claim the deduction but if it remains revenue in nature, despite the accounting treatment, then you should be fine (provided that it's been capitalised as an intangible and not a tangible asset - I have seen cases where software develeopment costs have been, rightly or wrongly, treated as tangible assets).

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to Lone_Wolf
04th Jun 2019 16:51

s1308 CTA 2009 is where this ended up.

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