With the backlash of Covid-19 and the relentless lockdowns, businesses have been hit hard. It’s hardly surprising cashflow is on every business owners mind right now. This is just one of many reasons, you might be looking to fast forward your R&D tax claim. If successful, bringing forward your R&D tax refund could be a huge helping hand for your business.
4 Ways to bring forward your R&D Tax Credit
So how can a company fast forward their R&D Tax Credit? Well, there are four routes we’re going to share with you, that are realistic options and easy to implement.
- Shortening your year-end
- Shortening your year-end…..again
- Applying for advance funding
- Getting your account filed on time
Before we look at the first option, let’s start with a quick recap on the timeframes. The hard and fast deadline for making a claim is two years after the end of the accounting year in which you incurred the costs. If you don’t claim within that two year window, you have missed out and there is no way to claw it back.
R&D tax claims are made via the company’s tax return which cover the same period as the company’s accounting year. You can only prepare and submit your accounts and tax return after the end of your accounting year. So in theory the earliest you can make your R&D Tax Credit claim is the day after the end of your accounting year.
- Shortening your Company Year End
Companies House automatically sets your company year-end based on the last day of the month the business was incorporated. But you can change your accounting year-end.
If you are experiencing cashflow issues, shortening your company year-end to bring the R&D Tax credit forward could be a way to get money back into your business faster. If money is tight, you should seriously consider shortening your current accounting period end, so you can make the claim as soon as feasibly possible.
Here’s an example.
A Software Company with a June year end has R&D costs of £100k and total losses of £100k up to 31 March 2021. However, they have forecasted their spend to be significantly less up to June.
As a result they decide to shorten the year-end by nine months, bringing it forward to 31st March 2021. By doing this they can now submit an R&D Tax Credit claim of £33,350 to HMRC, three months earlier.
- Shortening your Company Year End…..AGAIN
There’s actually no limit on how often you can shorten your accounting period year end. If you are expecting a fairly sizable credit, you could bring your year-end – and claim – forward by 6 months, say from September 2021 to April 2021, getting the cash back into your business by the June. You could then bring it forward again to the September and get even more cash into your business. The only thing to be mindful of is the fees associated with shortening your accounting period but these are likely to be minimal in comparison to the benefit of the cash to your business.
- There’s more….Advance Funding
There are lending companies that may lend you up to 50% of your tax credits up to six months before the end of your accounting year. The lender would need to perform a due diligence and eligibility assessment, to determine just how much they could lend you. If they agree to provide the funding the money is transferred to you, and when HMRC pays your R&D claim, you use the credit to repay the debt.
Here’s an example:
A Manufacturing company has been claiming R&D Tax Relief for three years and each year they get approximately £100k back from HMRC.
They have a June year-end, but their accounts and tax usually take nine months to finalise. Advance funding is available in January 2021 for the June 2021 year-end, which would otherwise only have been received in around May 2022. This effectively brings the cashflow forward by 16 months, with only the financing cost to the client.
- Get your accounts filed promptly
The earlier you get can get all the necessary company information to your accountant, the quicker they can process your R&D Tax Relief claim. You can’t do one without the other. We don’t want to be waiting to submit our clients R&D Tax Claims because we haven’t got expense receipts! It’s valuable funds waiting to come back into your business.
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If you’d like to explore bringing forward your R&D tax claim, we can help you, please book a call here.