Cut it short or draw it out? Accounting periods longer or shorter than a year and how they affect your tax-credit claim.Innovative
Many of the R&D tax-credit claims we submit to HMRC cover accounting periods longer or shorter than the usual financial year. It is perfectly possible to adjust the length of the claim period. A common reason for doing this is to suit a company that wants to take advantage of the tax-credit scheme immediately after a significant investment in a project.
The crux of the matter 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, which 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.
For example, if the accounting period is 18 months, and the company’s financial year follows the fiscal year, two thirds of the claim will be at one rate, and the remaining third at the new rate.
An alternative to extending the accounting period is shortening it. You can do this as many times as you like. If your accounting year usually follows the fiscal year, but you made large R&D investments in July, for example, it might make sense to claim for an eight-month accounting period in January.
This would free up some capital to sustain the business until the beginning of the usual financial year in March, when sales pick up and profits can be realised.