Your research and development (R and D) project is into its second year. Having successfully navigated your way through a claim for R and D tax relief for the previous accounting year, it’s time to compile documents for the next one. But can you submit another claim for the same project? Here we take a look at what happens when activity runs into two or even three years.
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Filing the Second Claim
Continued evolution is a natural part of research and development work. If your initial forays into solving a problem are fruitless and you have the funds to continue your project, it stands to reason you would continue to look for a solution. The UK government recognizes this. As such, you will be able to file a claim for the same project for two or more years running. The only provision is that innovation must still be occurring.
In other words, you cannot claim for the same activity twice. Therefore, if your team has made no further innovations on your activity the tax authorities will not uphold your second claim. So if your expenses simply include those for maintenance and customer support, you should not make a second claim. In order to be successful, detail any new activity in a technical narrative. This will form the foundation for your claim.
Additionally, when making the claim you should include only those costs that you incurred following the previous accounting period. So, if you claimed for 2016-2017, you must have incurred any costs for a 2017-2018 claim after the submission date of the earlier claim. This is true for each accounting period for as long as the project continues to innovate.
Calculating the Claim
The claims process for the second year of an R and D project is otherwise the same as for the first year. Add your total enhanced expenditure your CT600 form. Also include the calculation for the value of R and D tax credits you are due.
Qualifying costs comprise those that relate directly to your R and D activity. This could be staffing costs, materials, utilities, certain software and the like. If you are claiming for subcontracted work, reduce it to 65% of the original cost.
Differences in Claims Year to Year
The first phase of an R and D undertaking is usually the most expensive. However, some companies do experience an increase in subsequent years. This may occur if, for example, the company received grant funding during the first year of activity. Naturally, this would lead to a reduction in the amount that it could claim as R and D tax credits. If the project depletes or exhausts the grant by the end of the first year and it receives no further grants, the company’s R and D claim might go up during the second year.
In many cases, however, a reduced claim is the norm. Further, costs of developers or specialist staff would decrease as the prototype is refined.
For assistance with making a successful claim, providing supporting evidence, or checking calculations, contact a specialist R and D tax advisor.