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Novel, R&D tax relief, biotech, case study

Biotech firm uses Novel’s educational content to write their first R&D tax relief claim in-house and save money

Biotech firm director shares how he leveraged Novel’s educational content to help his team write their first R&D tax relief claim in-house and save money

With R&D tax relief, companies can save up to 33% on their taxes but what does it take? The biggest reason why businesses do not try to file R&D tax relief claims themselves and, instead, hire a specialist agent is because of their lack of knowledge, experience and perceived difficulty. Novel aims to tackle this barrier.

When Lee Sacker, the director of Evergreen Technologies, needed to collaborate with his team to prepare their first R&D tax relief claim, he turned to Novel. Read the case study below where he shares his experience using Novel, some challenges he faced and advice on how to successfully navigate this process.

The challenge Help Evergreen write a compliant research and development tax relief claim without prior experience and provide a place where multiple users can collaborate. 

The outcome – A centralised place for collaboration and record keeping for their R&D projects going forward and a successfully submitted R&D tax relief claim.

The impact – The outcome will help support Evergreen’s operations for on going R&D work and ensure that the process is recorded with maximum efficiency for strong future tax relief claims.

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tax relife

As Lee dials in from Europe with a tan that leaves us pale Londoners a little jealous, we begin tackling the big issue of what it takes to write a technical narrative for a research and development tax relief claim in the field of biotechnology. “I am someone who looks for automation. For things to be as slick and quick as possible and during my search, Novel came up,” says Lee, while Sanela (who is responsible for our marketing) flashes a cheeky smile from across the screen.

The scientific nature of Evergreen’s project meant that they had to work alongside their subcontractor when writing the claim, and, fortunately, “the collaboration aspect of Novel was really, really good”. However, Lee ran into some unexpected problems when trying to get the team to use Novel.

As someone who has heard of and completed R&D tax relief claims before, Lee was quick to understand and was on board to use Novel, but not all of his colleagues shared his enthusiasm for this type of automation. As an entrepreneur and technology business investor with a long history in software development, Lee’s perspective and experience allowed him to successfully introduce this process to some reluctant parties. “I’m massively into these sorts of tools so it’s easy for me, but someone else is just so cautious,” describes Lee. So he found himself explaining that, “this is here to help you, and to make the process easier, and cheaper for the company, it’s not here to pin you against the wall”.

“the collaboration aspect of Novel was really, really good.”

Doing an R&D claim yourself for the first time can be worrying because the tax system is complicated and full of nuances. However, the goal of Novel is to prove that despite the difficult nature of R&D tax reliefs, it can be codified, and, therefore, you can do it yourself. “I totally agree with you,” says Lee, “sometimes people think that they better use company X because they are specialists and they are charging all this money so they must be good but in reality when done with proper education, R&D claims can are pretty straightforward.”

Intriguingly, when building Novel, we recognised that giving users the confidence that they can write their R&D tax relief claim would be a challenge. Lee echoed our thoughts when he started discussing how “some people were worried about writing something wrong”. “I had to make it quite clear to them that this is a collaborative tool, which allows us to get the reports right.”

“this is here to help you, and to make the process easer, and cheaper for the company….”

Speaking of reports, we took this opportunity to ask Lee about his opinion on the fact that we don’t charge our users to download their report, and,  instead, give them the flexibility to amend them as many times as necessary. “I think this is valuable and also that Novel doesn’t send it straight to HMRC”, Lee adds. “I could explain to the team that it’s not like you press a button and it goes directly to them. No, you get a report, if you don’t like the look of it, then you press again and get another report until everyone is happy. Only then does it get submitted with the accountants”. 

Lee continues that another point of contention was his team asking, “why are we doing this and that we don’t need to write any reports”, in the first place. Although businesses can claim R&D tax relief without any supporting documentation by simply writing down the R&D expenditure number on the CT Return, but “for me”, starts Lee, “I believe in good preparation and forward thinking, therefore even if you don’t need to submit your reports there and then, it’s far more beneficial and easier to create them as you go while it is fresh in your mind rather than waiting a few years down the line for an enquiry.  So you are always a step ahead”.

To add to the point above, there appears to be a misconception amongst claimants who think that once the claim is paid out, it’s finalised. Whereas, many don’t realise that HMRC can go back and open an enquiry on your R&D tax relief claim, and therefore you want to have evidence of all the work along the way. “Exactly. The Evergreen projects are only a year old and already it’s difficult to recall some things we did, imagine trying to do this five years later. And what was good is even when we paused for that brief moment, we were always able to go back to Novel, and it’s all there so you can continue where you left off. That works brilliantly.”

“…we were always able to go back to Novel, and it’s all there so you can continue where you left off. That works brilliantly.”

And on that positive note, we got ready to say our goodbyes but before we left, we asked Lee’s advice on what we can do better, his response was “like a lot of these things it has a lot to do with education. You have to educate people to understand the what and the why”. We couldn’t agree more with Lee, and have begun working on some exciting plans for Novel in terms of education, so stay tuned, sign up to the platform or to our newsletter and learn more.

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How to use the Tasks section?

Love them or hate them, task lists are a great way to stay organised. We’ve all had that sinking feeling when we realise we didn’t remember to include something important. Forgetting to include an important piece of information could be the difference between having a successful claim or getting an inquiry from HMRC and being refused relief.

There is a lot of important information that needs to be included and we recognised that knowing which details are crucial can sometimes feel overwhelming, and the Tasks tab is there to guide you through it.

The Tasks tab in Novel is a blend between a project management tool and a to-do list, which shows your R&D claim progress and different categories of tasks to ensure you are doing everything correctly. Let’s dive deeper into where to find the Tasks tab in Novel and how to use it.

The Tasks section

1. You can find the Tasks tab in your left hand Navigation

2. This opens up the Tasks page in Novel, where you can see different types of tasks broken down into general tasks and claim specific tasks.

3. Tasks are broken down into Must do and Should do tasks. Must do tasks are all tasks that are necessary in order to submit your R&D tax relief claim. You will not be able to finalise your R&D claim within Novel without completing all the General and claim specific Must do tasks. Should do tasks are a nice addition to your claim and help it be more robust, but they are not required.

Tasks that have already been completed will have a checkmark next to them.

3. General tasks provide an overarching view of your business, such as your company description, field of R&D and UTR. In the case of completing a compliant R&D tax relief claim, these are all required, which is why you see them in the Must do column. 

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4. Claim specific tasks are broken down further into tasks for two types of users:

  • Technical User Tasks provides information and explains the R&D activities
  • Financial User Tasks breaks down the costs that have been incurred in carrying out the work set out by the technical narrative

To learn more about what type of users these are, read our blog here or below.

The benefit of breaking down tasks between technical and financial users is to offer transparency to the claim preparation process by helping the team see what everyone is responsible for inputting into the platform. It also leads towards a more robust R&D tax relief claim because there is little guesswork involved because the users that are required to input the information are the people who have the relevant knowledge or carried out the activity.

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Click here to get started with Novel.

Still have questions?

Contact Support.

What’s the difference between a commercial project and an R&D project?

To help you decide whether your project qualifies for R&D tax relief, it can be helpful to think about the distinction between a commercial project and an R&D project. Generally speaking, a commercial project is defined at a higher level and encompasses the whole commercial journey from start to finish, whereas an R&D project is a subset of activities that focuses only on resolving the challenging scientific or technological aspects of the commercial project. This also means that just because something is commercially innovative; it doesn’t necessarily qualify for R&D tax relief.

Why is this important?

 

The purpose of writing the supporting technical narrative is to detail the activities that make up an R&D project. A common mistake is to focus on the commercial project by centering discussions around commercial or business aims and commercial uncertainties. Doing this dilutes the technical narrative with non-qualifying activities and it can even weaken the claim in the face of a HMRC enquiry. This is often the case where key indicators of an R&D project aren’t clearly explained or split out.

However, this doesn’t mean the overarching commercial project shouldn’t be mentioned at all. The commercial aim is ultimately what drives the R&D activity and provides important context as to why the R&D project has come about.

 

Within Novel, when creating a Project, there are fields where you can add the associated Technological/Scientific Uncertainty, Commercial Aim, Advancement Sought and Baseline Knowledge. You will notice that you can add multiple activities but only one uncertainty per project. This ensures that the focus is on compartmentalising a commercial project into the various R&D project(s), rather than allowing for the one project with many uncertainties which may ultimately blur the line between that of a commercial project and that of an R&D project.

Where do we draw the line?

 

An R&D project can be distinguished by considering what type of activities are taking place. Certain activities simply aren’t regarded as R&D as they do not relate to any scientific or technological aspect of the project. For example, commercially necessary but non-R&D activities include:  

·   competitor research and analysis

·   supply chain & procurement management

·   production & logistics

·   marketing & sales

For this reason, in Novel, when Creating an Activity, we have a specific list of Activity Types, which are most commonly featured in R&D projects and claims. If this list doesn’t include your activity which you believe goes towards resolving technological or scientific uncertainty, you still have the option to select Other and specify the work in detail.

commercial, randd, research and development, novel

What are the boundaries for R&D?

 

 

R&D starts when a scientific or technological uncertainty is identified and continues until the uncertainty is resolved, or when work aimed at resolving the uncertainty ceases. This work is often referred to as an ‘activity’ and during an R&D project there are two qualifying types of activity:

·   directly contributing activities; and

·   indirectly contributing activities.

Direct or indirect?

 

 

Directly contributing activities are all activities that directly contribute to the resolution of technological or scientific uncertainty. This work is often carried out by those who have hands-on experience with the technology or science at the business, such as engineers, developers and scientists.

Indirectly contributing activities include a multitude of activities which go towards supporting the above directly qualifying activities. A full list can be found within paragraph 31 of the BIS guidelines, though to name a few this includes: feasibility research, HR and Finance support, maintenance of R&D equipment and premises, scientific or technological administration. Note, these activities are only relevant insofar as they support directly qualifying activities, rather than the business as a whole.

Want some more information?

 

 

The Novel platform contains many educational pieces which are designed to inform and educate the user on what projects and activities qualify. If you have any questions, either about the educational content or something we haven’t covered, feel free to contact support via Intercom and we will be happy to help.

 

Do your next R&D tax relief claim with Novel.

Collaborate with your team in Novel

Collaborate with your team in Novel

The reality of innovation is that it’s often a collaborative and information-sharing process, sometimes even referring to information that not all parties are privy to, such as staff costs. If it was up to one person to claim R&D tax relief for themselves, the whole process probably would have been easier. But it seems that innovation likes company so we’ve built features in Novel that allow you to easily collaborate with others on your claim and keep everything organised from start to finish.

How to add a user

After you’ve added an organisation to Novel, you will automatically be granted admin access rights. This means you have access to all the information.

1. To add a new user to an organisation, click the Users tab in the left-hand navigation.

2. This opens up the Users page in Novel, where you can then click the button in the middle that says, Add User.

Novel, R&D tax relief software, users, type of users

3. This will open up a new page where you can either search for existing Novel users by email or username or add a new user by clicking Add User.

For example, let’s try adding John Smith to Novel. First, we check whether he’s already on the platform by either typing his name or username. From the image below, we can see that John Smith isn’t a user, yet, so let’s add him by clicking Invite New User.

Novel, R&D tax relief software, users, type of users, research and development software

4. When you click Invite New User, you will need to provide some details about the new user, such as their name, email address and assign them a username. Keep in mind that the username cannot be changed.

5. Next you will need to choose what Type of User they are. You have three user types to choose from which have different levels of access. Once you’ve chosen what type of user they are, click Invite User.

RoleRead OnlyEditor
Technical UserHas access to everything in the system apart from the Financials page, but cannot write or edit any content, only read it. Most likely candidates for this user type are:

– Financial Directors
– Head of Finance
– Accountants internal or external
Has access to everything in the system apart from the Financials page, and can add information.

This user type is ideal for anyone who has undertaken the R&D activities and is able to write about them.
Financial UserHas access only to the Financials page but cannot write or edit any content, only read it. Most likely candidates for this user type are:

– Chief Technology Officer
– Development Leads
– Head of R&D
Has access only to the Financials page and can write or edit any content. Most likely candidates for this user type are:

– Accountant
– Project Manager 
– Head of R&D
– Chief Technology Officer

Admin – Has full control of the organisation with the ability to add, edit, delete users and update payment information.

You can also have more than one type of user access. So if you have a person who would be in charge of writing the technical narrative but is privy to the financial information of the R&D projects, albeit not wanting to edit it, you could grant them Technical User (Editor) and Financial User (Read Only).

6. Once you’ve clicked Invite User, Novel will send the credentials to the email address that you had inserted. When the new user first logs in, they will see your organisation in the Organisation List and will be able to start using the system.

How do I remove a user from my organisation? 

1. Only an Admin can remove someone from an organisation. To remove someone from an organisation, go to the User tab in the left-hand navigation, click on the user you want to delete, scroll down and then click Delete User. Novel will double-check if you’re sure you want to delete the user, after which the user will be deleted.

Do you charge per user?

We do not charge per user but per organisation. Therefore, there is no limit to how many people you can add as users to your organisation to complete your R&D tax relief claim. Instead, you will always pay a flat fee of £50 + VAT per month.

Still have questions?

Contact Support.

Connected party blog

What is the impact of ‘connected party’ rules on subcontractors and externally provided workers when claiming R&D tax relief

connected party, randd, apportionment, subcontractor, EPW

One of the most generous aspects of the SME R&D tax relief claim is that companies can claim for subcontractor costs and externally provided workers (EPWs), commonly known as agency workers. However, claimant companies, especially SMEs, often find themselves dealing with ‘connected party’ rules.

There are a number of ways that two businesses may be regarded as connected parties. The most common way is that the claimant company either owns or is owned by another company. Another time connected parties rules apply is when there is a family relationship, such as businesses involving parents, siblings and children. In this article, we will give a brief overview of what subcontractors and EPWs mean, and we will discuss how the connected party rules may impact your claim.

Difference between subcontractors and EPWs

When it comes to undertaking innovation research and development, companies will often outsource work to other businesses that may have either the expertise or the equipment necessary to progress with a particular aspect of the project. Whatever the reason may be, for the purposes of R&D tax relief, it is important to ascertain the nature of the relationship between the claimant business and the subcontractors or EPWs in order to ensure that the costs are eligible to be claimed. But before we dive into that topic, let’s discuss the difference between the two types of worker.

Subcontractor relationshipExternally provided worker relationship
– Typically undertake work on their own terms as experts in the field.

– Have their own methods of working and work towards deliverables.

– The task that is subcontracted out is the responsibility of the business and not a particular individual.

– Work with a high level of autonomy, as long as projects or tasks meet deadlines, the subcontractor is free to manage themselves.

– Subcontractors tend not to take on the economic risk of the project. For example, say a discovery project goes ahead, subcontractors are paid to get the project done even if it ends up being not commercially viable for the claimant company.
– A specific person is brought into the claimant business as an additional resource but is not on the business’s payroll, instead they are paid via a third party, such as a staffing agency.

– The individual usually works at the premises of the business in question alongside the team undertaking the R&D, relying on the equipment provided by the business.

– EPWs are often paid for a particular amount of time (e.g. hourly, daily or monthly rates).




Dealing with subcontractor and EPW costs within the R&D tax relief claim

Unlike staff costs, where you can claim 100% of the staff costs that are relevant to the R&D project, for subcontractors and EPW you can only claim 65% of the relevant costs, unless they are deemed to be ‘connected’, which we will discuss in more detail in the section below. For these cost categories, the legislation reduces the claimable amount to 65% of the costs, so as to exclude any profit margin the third-party may be making on their services. We presume that the intention is to encourage businesses to carry out R&D work in-house rather than subcontracting it. 

If you’re inputting information about your subcontractors and EPWs into Novel, the system’s auto financial apportionment function will apportion the costs to meet HMRC requirements automatically.

For example, we highlighted above that only 65% of subcontractor costs are eligible for R&D tax relief. Let’s imagine that we paid Enterprise Z £100,000 (ex VAT) for their services and they spent 100% of their time working on our R&D project. 

When we go into Novel, we will insert the price as £100,000 and the apportionment as 100%. Novel will automatically apportion the financial information you add. In the financial overview section, you will see the relevant expenditures for your R&D claim, which is £65,000 or 65% of the costs incurred, as demonstrated in Image 1 and 2. Therefore, the system will allow you to see and understand your Total R&D expenditure alongside what you are eligible to claim as tax relief.

Image 1
Image 2

However, the 65% restriction does not apply when you are connected to your subcontractor or EPW. This is why you see there is a little tick box in Image 1 to establish whether the costs you are including are from a ‘connected party’. 

What changes when subcontractors and EPWs are deemed a ‘connected party’?

For example, Business Seed owns Enterprise Z and enlists them to create a prototype for a bespoke commercial building design. This situation would be classed as a connected party because Business Seed owns Enterprise Z.

When you are dealing with subcontractors or EPW R&D costs of a connected party, you may be able to claim more or less than 65% depending on what actual costs were incurred by the service providers. The claiming company can only claim R&D tax relief on the lower of:

  1. The payment it makes to the subcontractor or EPW
  2. The costs incurred by subcontractor or staff provider

For part 1, payment amounts should be easily ascertained by the claimant company from its own accounting records. Part 2 requires access to the subcontractor/EPW’s accounting records. To ascertain the costs incurred by the subcontractor/EPW (known as the “relevant expenditure”), the claimant company will need to calculate the sum of the following:

  • Staff costs (including gross salaries and wages, bonuses, employer’s national insurance contributions and pension contributions)
  • Consumable items
  • Software costs
  • Clinical trial volunteers

Let’s take our previous example to outline the above. Business Seed paid £100k to Enterprise Z for their bespoke building mockups, but Enterprise Z’s costs for delivering the mockups were only £75k. Assuming that the full £75k was relevant expenditure, then Business Seed can claim the full £75k as R&D relief as it’s the lower of the two. Where it is established that the parties are connected, no 65% apportionment is required. 

Therefore, to account for the ‘connected party’ rules within Novel, we’ve included a ‘connected’ tick box, which effectively will tell Novel not to apply the 65% apportionment. Instead, you will need to ensure that the costs are based on the categories listed above rather than invoice values including any markup. 

If the parties are unconnected but you’re privy to the actual costs incurred in providing the R&D work, it’s worthwhile exploring whether electing to be connected is a worthwhile step to take. For example, if you’re engaging with a subcontractor who is open about their profit margin, which is, say, 20%, this is less than the unconnected restriction (35%) and it’s therefore beneficial to make an election, assuming both parties are happy. This will maximise the value of your claim.

For example, what if Business Seed decided to go another way and not enlist Enterprise Z for their mockups but instead use Cheap Designs Ltd, who also charge £100k for their service. However, their profit margin is much lower than Enterprise Z, notably their costs were £90k to deliver the design. As the profit margin was only 10% of the initial cost and is less than the unconnected restriction (35%), it would be more beneficial for Business Seed to elect to be considered as being ‘connected’ to Cheap Designs Ltd, as this would yield a bigger benefit.

In Novel, this would look like Img 3. By checking the ‘Connected?’ tick box, you will be able to edit the ‘Relevant Expenditure’ field to match what was the actual cost of the work as opposed to having the automatic 65% apportionment.

Image 3

A word of caution: although choosing to be treated as elected companies may be beneficial for you, make sure to stipulate the time scale of how long you wish to be treated as ‘connected’. If you don’t do this, for the purposes of R&D tax relief, you will be treated as ‘connected parties’ for all payments under the same contract or arrangement. We suggest that the timescale you chose corresponds to your accounting periods and is supported by a contract with a predetermined end point. 

Do your next R&D tax relief claim with Novel

The world of R&D tax relief can be daunting, which is why we created Novel. Full of educational pieces and intuitive features, Novel will help you generate HMRC-compliant R&D tax relief claims, quickly and efficiently in-house. Also, if you need any help along the way, you can reach out to our team of qualified R&D tax experts who will guide you along the way.

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Are you talking to your colleagues? How lack of collaboration is hurting your R&D tax relief claims

tax relief, R&D tax relief software, software

“I’m not sure I can take that off my to-do list just yet, I can see that Bill still has to add some numbers.” Seems like a common sentence within the office environment but when it comes to building a software that actually communicates this type of information, it’s not so straightforward.

Products that require collaborative work need to provide their users with means to plan, collaborate and track to ensure that everyone is aware of what has been done and what is left. Now when you’re dealing with something as complicated as claiming R&D tax relief, building a software that is able to support these sorts of processes will act not only as a guiding force but will also help reinforce the quality of the claim.

Claiming R&D tax relief can be a tricky process, especially if you haven’t done it before. In a way, you have to submit to HMRC two types of reports, one is the technical narrative and the other the financial narrative. In the technical narrative, you outline all the different types of projects, activities and experts that were involved. In the financial narrative, you attach numbers to your technical narrative. Often the people who are involved in the technical side of things, are not involved in the financial aspects of the projects.

For example, if you are a team of chemists working on a new flavour for a beverage company, you are concerned about figuring out a way to make sure that the formulation of the new drink is stable by testing its chemistry, stability and performance. You would rarely find that these people are also the ones handling wages, paying for the inventory and handing subcontractors invoices, these sorts of things are handled by the accountants or HR departments.

This is why when it comes to writing an R&D tax relief report, the information required is often held by different people. A claim won’t be successful if the information held by the different types of people isn’t combined correctly, which is why it was important for us that when we built our R&D tax relief software the aspect of collaboration is at its forefront.

Value built on collaboration

We knew that for our clients to claim successfully, Novel needs to provide its users with means to plan the team’s work and track user changes to ensure everyone contributes fairly and is aware of the latest changes. So how does Novel help users within an organisation stay up to date with the organisation’s most recent updates?

As part of a large organisation tracking system with complete visibility over history changes, we have recently implemented a push notifications feature, which allows users who belong to the same organisation to see its most recent changes. Users who are within an organisation level can now open a notifications menu from the top navigation and see what part of the organisation was updated and who did the change. Navigating outside of an organisation level and opening the notifications menu would instead show the most recent updates regarding the user’s account.

What does it mean for the users?

Let’s be honest, things get forgot and things get missed. The value of having a notification system to track what different users within the system do helps us always be aware of the progress of our R&D tax relief claim as well as what changes have happened or haven’t. This function is also meant to help users plan their next steps and not miss key deadlines.

For example, the chemists go into Novel and submit that the project for the new flavour they have been working for has been complete. In turn, the users with the knowledge of the financial side of things can use this as an indicator to put in the relevant costs data.

For the techies out there, this is how we did it

Regardless of how complex or simple an app feature is, it must always be implemented with best possible user experience in mind – ease of use and to take little to none of the user’s time. Novel notifications menu is well crafted to allows users to see all the information they need within a few seconds of opening the menu. We achieved this by using coloured text to emphasise on the message key words and the profile picture of the user who made the change.

tax relief, R&d tax relief software, Novel

We decided not to show the actual change in the notification message, as it would be unreasonable to put a large chunk of text in a small notification menu. Instead, users can click on the notification and they will be taken to the page where the change occurred and see what was updated. Showing the actual change would certainly help our users better manage their organisation, but this will be left for the part of the organisation tracking system mention above.

For those interested in the technologies used, the back end keeps track of and stores an organisation or user account recent update logs in AWS CloudWatch. These logs are then fetched, parsed and altered to be relevant and human readable through AWS Lambda and passed to the front end. The front end runs a few functions to store in Redux, cache in Local Storage and format using declarative approach the logs. Also, to maintain a two-way real time communication we have implemented web sockets which listen for any upcoming notifications.

Do your next R&D tax relief claim with Novel

Generate HMRC-compliant R&D tax relief claims without the complexity quickly and efficiently in-house as well as take advantage of its suite of features: education content, financial aggregators that make complex calculations for you, and R&D tracking feature. 

Preparing R&D tax relief claims hasn’t been easier. 

Subscribe to Novel today.

How Do Accounting Periods Impact R&D Tax Reliefs?

R&D tax credits are a type of Corporation Tax relief; therefore, it’s tied to your accounting period. Generally, accounting periods are twelve-month long. If you just found out about R&D tax relief, the good news is that you can claim the credit retrospectively as well. The deadline to claim R&D tax relief retrospectively is 24 months from the end of your accounting period.

How do we deal with accounting periods in our R&D tax relief software solution Novel?

Novel integrates directly with Companies House so when you set-up your organisation on Novel, you will notice that we automatically populate the claim periods which you can claim for. Claim periods relate to the accounting periods of the business and your R&D claim will generally be aligned with these dates.

For established businesses, you will typically see three claim periods: current, previous and past. Ensure that your claim period and accounting periods correspond to what is on Companies House. If they don’t, you can manually edit the information in Novel.

The current account period can be used to track ongoing R&D through Novel. With R&D tax relief you can claim up to two years worth of retrospective R&D which is why you will also see two past accounting periods displayed in Novel. This means, if you just have found out about R&D tax relief and feel like you’ve been doing qualifying R&D work for a number of years, you can still claim relief for some of that work.

If you’re in your first year of business, you may only see your current accounting period. The first accounting period is usually slightly longer than twelve months, as the accounting period defaults to finishing on the last day of the month. For example, if you incorporate a company on 15 March 2021 then the first accounting period will run from 15 March 2021 to 31 March 2022. You can see an example of this in the screenshot below.

As a start-up business, you should be on the lookout for any expenses and begin recording the work that could potentially qualify for a tax deduction in Novel as soon as possible, especially if you are close to filing your Corporation Tax Return (CT Return). This will help create strong supporting documentation to be submitted to HMRC. 

After this point, an accounting period will usually span 12 months. However, businesses can either shorten or extend their financial accounting period to better fit their commercial needs. Keep in mind that when you extend your accounting period, you also extend when you are able to file your R&D claim as the claim is tied to your statutory accounts and corporation tax return, thus delaying when you can secure the benefit derived from claiming R&D tax relief.

Why is there a time limit of two years from the end of your accounting period to claim R&D tax relief?

R&D tax relief is a type of Corporation Tax relief, therefore the two year limit ties into the deadline for amending your Corporation Tax return, which is typically 24 months after the end of your accounting period. You won’t be able to claim back money on any qualifying R&D once you reach the two year cut off period, regardless of how long your accounting period was.  

How many months should I be trading before I can claim R&D tax relief?

To claim R&D tax relief, you need to have one full accounting period. For example, Novel is a software start-up by Optimal Compliance that officially launched in March. From the image below, you can see that Novel’s upcoming accounting period is from March 2021 to March 2022, therefore we will only be able to claim R&D tax relief for work done once 31 March 2022 has elapsed. This date will change if we choose to either extend or shorten this accounting period.

accounting periods, tax relief, novel R&D tax relief software

No need to put off making your R&D tax relief claim

If you are in a similar position as Novel in terms of your accounting periods, don’t be put off from setting your organisation up on Novel. Instead, you can use the software to track your ongoing R&D so when it comes to making your claim, you have the project’s facts and figures all written down.

The benefit of this is that it will increase both the quality and integrity of the claim, as you’re able to note down the particular technological/scientific problems that you’ve encountered in real-time, as opposed to looking back retrospectively. This in turn enhances the information you provide to HMRC and avoids any last minute rush for paperwork or supplementary information.

What if I have already filed my corporation tax return (CT600) for the period in which the qualifying R&D activities took place?

The short answer is yes. It is possible to submit an R&D claim as an amendment to the CT600. However, do make sure to include the amended Tax Computation along with the amended CT600, otherwise HMRC may not process the claim. Legislation dictates the time limits for amending Corporation Tax returns; this is currently two years after the end of the company’s financial year-end. In other words, it is possible to claim R&D tax credits retrospectively up to two years after the accounting year end date.

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