How to claim R&D tax credits for startups
If your client’s business is a startup or in its infancy, claiming R&D tax credits can be immensely beneficial. The significant financial benefit of R&D tax credit is invaluable for development. At this early stage, they might say they’re too busy to research claiming R&D tax credits. However, if your client is an SME or a young business, claiming R&D tax credits before their first tax return will yield great results. Freeing up technological assets and saving thousands of pounds in tax credits is a huge developmental boost.
First things first, when is the best time to apply for R&D tax credits? Knowing HMRC’s schedule and timing parameters for processing claims is vital. Being aware of this information will help your startup client plan their R&D tax credit claim. Read on to find out how to complete it easily before their first tax return.
How far back can I claim?
If your client wants to claim R&D tax credits you need to know when their accounting period starts and ends. HMRC places a time limit of two years on claims. This is due to the fact that R&D tax credits are a form of Corporation Tax relief. Typically, the deadline for amending a Corporation Tax Return is 24 months after the end of the relevant accounting period.
- Example: A business files accounts on December 31st each year. It has until December 31st 2021 to claim any qualifying activities it undertook between January 1st 2018 and December 31st 2019. After December 31st 2021, the business can no longer claim R&D tax credits on activities from the accounting period 2018-19.
Many businesses make it so their accounting periods end on March 31st. This is for simplicity's sake, as it is in line with the tax/fiscal year. This also removes the risk of any confusion of which time scale to use when it comes to applying.
‘What if my client undertook a project before the start of their earliest claimable accounting period?’ We hear you ask. Don’t worry, they can still claim qualifying expenditure from the project if it continues into the two most recent accounting periods. Though this will not be the entirety of the R&D costs of the project. This also applies to work your client is in the process of completing. However, it must prove to be resolving a technological or scientific uncertainty.
Read about the projects that qualify as R&D here.
What if my client is a startup?
The first year of business for startups tends to be less structured when it comes to accounting periods. When a business gets registered with Companies House, its incorporation date is set at the date of registration. This is also called the nominated registration date. This means the accounting period for the new business is set at twelve months from the end of that month. Of course, this may prove not to be so convenient moving forward.
As a startup, your client’s first few accounting periods can be anything from 6 to 18 months before they submit their first tax return, meaning the accounting period relevant to their claim won’t be two years long. This is important as it will dictate the number of qualifying activities that can be a part of the claim. This in turn will influence the worth of the R&D tax credit claim.
- Example: A new business or startup is set up on 12th June 2022. Its first accounting period starts from the 1st of June that year. This period then lasts for 16 months, ending on 31st October 2023. The company has until 31st October 2025 to claim any qualifying costs between 31st June 2022 and 31st October 2023.
Remember, whatever the length of your client’s accounting periods, the deadline remains two years from the end of each one.
To read about how to check the eligibility of your client’s business here.
Help for startup claimers
Startups claiming R&D tax credits for the first time are able to benefit from HMRC’s Advance Assurance scheme. This allows first-time claimers to understand their eligibility for R&D tax credits made prior to submitting a full claim. This takes the pressure off your client’s R&D tax credit application and allows them to plan ahead. Advance Assurance is a resource that is criminally underused!
Your client can apply if:
- They are an SME.
- Planning to, or already have done, R&D.
- Part of a group where none of the other companies have claimed R&D tax credits.
Here is the information you will need to have to hand:
- Your client’s company accounts.
- Your client’s company registration documents.
- Correspondence from HMRC.
- Any previous tax returns (not relevant for startups or infant companies).
- The name of the individual your client would like to put forward to discuss their R&D application with HMRC. This person should have direct knowledge of your client’s R&D activities.
You can find full details of how to apply on the Gov.uk website.
Still unsure? We’re here to make it simple
made.simplr offers online R&D tax credit software that makes it easy to track your client’s projects in relation to their accounting periods. In this way, they’ll always know when R&D activities are approaching a claims deadline. Inputting financial accounting data into our system takes no time at all due to integration with Xero. This is a big time saver, as you and your client no longer have to find out when R&D work got completed. Quickbooks and Sage integrations are on the horizon too!
By signing up to our system your client will also gain access to a team of seasoned R&D tax credit specialists. Many of our team have worked within HMRC processing tax credit claims. As a result, they can offer startups invaluable advice on when it is best to apply for R&D tax credits. Furthermore, they can help them secure Advance Assurance by reviewing their application and giving suggestions.
Book a demo with us today.
You might also be interested in
made.simplr is a cloud-based R&D tax credit software specifically designed to address all the challenges that come with the preparation of R&D tax credit claims. An all-in-one R&D software that automates and digitalizes the management of R&D tax credit claims. It helps accountants scale up their R&D operations without any...