Shortening or extending your financial year could positively impact your R&D Tax Credits claim. Here’s what you need to know.
Many of the R&D Tax Credit claims we submit to HMRC cover accounting periods that are either longer or shorter than the usual financial year.
It is perfectly possible to adjust the length of the claim period. And doing this can yield major benefits when you claim R&D Tax Credits.
Shortening your financial year for R&D Tax Credits
One reason companies shorten their financial year is to take advantage of the tax credit scheme immediately after a significant investment in a project.
Let’s say you were a pre-revenue business, bringing a new product to market.
If your accounting year usually follows the fiscal year, but you made a large R&D investment in July it might make sense to claim for an eight-month accounting period in January.
This would free up some capital to sustain the business while you bring your product to market and start generating revenue.
Accessing the scheme more quickly can also help companies looking to increase their cash reserves, either to make an investment or to soothe financial difficulties.
You can shorten your financial year as many times as you like.
Extending your financial year for R&D Tax Credits
Extending your financial year can also have its benefits.
The key is the CT600 – your corporation tax return. This form can account for a maximum of 12 months, so any accounting period longer than this will involve two CT600s covering a period of a maximum of 18 months.
Extending an accounting period is allowed once every five years.
When we make a claim, we do so according to the periods dictated by the CT600s. The same bundle of claim papers covers the duration of both CT600s. However, expenditure must be listed in the claim according to the periods covered by the CT600s.
This means invoice and payroll dates are important. If you cannot provide these, it is not the end of the world. HMRC sets enhancement and surrender rates each fiscal year. In years where new rates are introduced, we simply apportion a company’s expenditure according to the rates before and after the revision.
Let’s say your accounting period is 18 months, and your financial year follows the fiscal year. In that case, two-thirds of the claim will be at one rate, and the remaining third at the new rate.
Thinking of changing your financial year?
If you’re thinking of shortening or lengthening your financial year for R&D Tax Credits reasons, it’s best to work with a specialist.
A specialist like GrantTree can help you decide your best move as a business while maximising your claim size.