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FOMO. For those cool enough to be down with social media and texting slang, that’s an acronym for ‘fear of missing out’. For small to medium-sized business owners wishing to claim research and development (R&D) tax credits, the FOMO is real. 

If you don’t act within a specific timeframe, your business could miss out on a valuable cash injection from HMRC. You have precisely two years from the end of your accounting period to claim back on any R&D work undertaken over the past 24 months. 

Otherwise, you could potentially miss out on tens of thousands of pounds. And there’s no going back.  

The time limit exists because R&D tax credits are a Corporation Tax relief, and the deadline for amending your Corporation Tax return is typically 24 months after the end of your accounting period.

Corporation Tax returns can only be prepared for a twelve-month period maximum. As R&D tax credits claims and the Corporation Tax period go hand in hand, claiming back on R&D expenditure for two years would require two separate claims. 

Adjusting your tax year

HMRC does allow you to change your accounting period to fit around R&D projects for R&D tax credits purposes, meaning that you can, at Companies House:

  • adjust start and year-end dates (although you can’t change the year-end if your accounts are overdue with HMRC)
  • extend your accounting period up to 18 months ​(you can only do this once every five years)
  • shorten your accounting period after a significant R&D project to claim your R&D tax credits sooner ​(you can do this as many times as you like)

R&D tax credits timings for start-up businesses

Tax year flexibility can be helpful for start-up businesses when 12 months from the end of their incorporation date may not be a convenient tax year-end date.

In your first year of business, your financial period can be anything from six to 18 months, meaning your first two accounting periods as a business for which you can claim may not be two years.

Exceptions to the rule

HMRC does allow the extension of the two-year time limit in exceptional circumstances, but these exceptions are rare and only made for reasons beyond a company’s control.

If your businesss end of tax year is coming up, or you have any questions on the above, you can get in touch with Easy R&D here.