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HMRC have published a reminder to companies that claims to Research & Development (R&D) tax relief for accounting periods ending before 31 March 2006 must be made by 31 March 2008.

R&D tax relief allows companies to claim an enhanced deduction in respect of qualifying R&D expenditure. The amount of the enhancement depends upon the size of the company but generally small and medium companies can claim a 150% deduction and large companies can claim 125%, in respect of qualifying expenditure. The deduction reduces the taxable profits and therefore the corporation tax payable.

In some instances the enhanced deduction gives rise to tax losses and in certain circumstances small and medium companies can surrender these in return for a payable tax credit. Claims to the payable tax credit must be made, amended or withdrawn by inclusion in the company’s tax return or amended return. This means that the time limit for making payable tax credit claims is the same as that for making or amending a company tax return, and this is generally two years from the end of the accounting period. This time limit is unaffected by an open enquiry.

In a move to simplify the claims process it was decided to align the time limits rules for claiming R&D relief across the various R&D schemes.

This was done in Finance Act 2006, which introduced amendments to the existing claims rules. As a result, for accounting periods ending on or after 31 March 2006, all claims to R&D tax relief, including vaccine research relief, must now be made in a tax return and are subject to the normal corporation tax self assessment time limits for making, amending and withdrawing claims.

When the time limits were changed it was decided to introduce a transitional period to give companies time to make their enhanced deduction claims for past years. The transitional period covers accounting periods ending after 31 March 2002 but before 31 March 2006 and runs until 31 March 2008.

This means that all claims to R&D tax relief for the accounting periods covered by the transitional period must be made by 31 March 2008.

Link

HMRC: Brief 70/07