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Business Tax  •  HMRC  •  Personal tax  •  Small Business  •  Tax Planning  •  Tax Relief

R&D tax credits enhanced to include employee expenses

By RJP LLP on 11 September, 2017

Companies that have been benefiting from R&D tax relief – either in the form of lump sum tax credits or lower corporation tax bills - take note. Following a recent change of heart on the part of HMRC, it is now possible to claim R&D relief for reimbursed business expenses paid to your employees. R&D claims that have already been made without including these expenses can be amended, but of course there are caveats.

This article explains the new rules and how you could benefit from some extra tax relief.

Every little helps!

Although at first glance the sums involved may appear small, for example a few hundred pounds here and there, over a period of time, not insignificant amounts of extra tax relief could become available. Depending on when your company year-end falls, it may be possible to submit a backdated claim over a 5-year period from 2012 to 2016.

Clarifying the new rules on R&D tax credits

HMRC have released guidance on the R&D tax treatment of business expenses paid for by employees and reimbursed to them by the company. This constitutes a change in HMRC’s previous view, and means that companies making R&D claims can now include a claim for certain reimbursed expenses, including travel and subsistence, in relation to R&D activities. Items such as travel from home to work, training and hire of facilities will remain non-qualifying on the basis that they are not costs of employing staff, and they do not relate to the performance of their job.

What counts as reimbursed business expenses?

In order to qualify for relief, the following must apply to the expenditure incurred:

  • It must be attributable to relevant R&D;
  • It must be incurred by the employee and reimbursed by the company; and
  • It must be a cost for the company of employing staff and it must be incurred for the employee to perform the requirements of their job.

Making back-dated claims

In the normal course of events, R&D claims can be made for all accounting periods which ended in the previous two years.

Claims in relation to this specific relief can however be made for earlier periods provided they are submitted to HMRC by 31 January 2018.

To make a back-dated claim beyond the statutory two years, it must relate to an R&D claim that was made on or after 9 October 2014 and relates to an accounting period which ended between 9 October 2012 and 31 January 2016.

Act quickly to benefit

The ability to make a retrospective R&D tax credits claim is available for eligible companies until 31 January 2018 after which time it will be available for new claims only, or for those which relate to an accounting period which ended in the previous two years.

If you would like to discuss making a backdated claim for employee expenses related to R&D activity, or want advice in making a new claim, please get in touch with us by emailing partners@rjp.co.uk.

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