An opportunity has arisen for companies to go back and amend their research and development (R&D) tax claims, following a change in HMRC guidance.
Previous policy
On 8 October 2014, HMRC issued guidance stating that reimbursed business expenses did not qualify for enhanced R&D tax relief.
Reimbursed expenses are, broadly, business expenses incurred by staff and directors in respect of qualifying R&D activities which are then subsequently reimbursed by the employer.
This could include expenses such as travel and subsistence but not home to work travel.
New policy
HMRC has effectively done a U-turn on the October 2014 guidance and has now provided guidance advising that reimbursed expenses can be included in an R&D tax claim subject to certain conditions including:
- the expenses must be directly attributable to qualifying R&D activities;
- they must be expenses of employment such that the employee can perform the requirements of their job; and
- the expenses must be incurred by the employee directly (i.e. not via a company credit card).
As a result, some claims which were prepared and filed following the October 2014 guidance may have been understated.
Opportunity for amended claims
HMRC are providing companies with a window of opportunity to amend R&D tax claims for accounting periods ending between 9 October 2012 and 31 January 2016 providing the claim was filed after 9 October 2014.
The deadline for filing any amended claims, which were understated as a result of the guidance, has been extended beyond the normal two year time limit to 31 January 2018. This doesn’t leave much time, so we would recommend companies to check their position as soon as possible.
For accounting periods ending after 31 January 2016, the normal two year deadline will apply, therefore, there is further scope to amend recent claims as well.
Although the costs for one year may not be significant, the ability to go back and amend claims for multiple years, could lead to a sizeable tax saving for the company.