R&D Tax Credits Question

Newbie Registered Posts: 229 Dedicated contributor 🦉
I have a client with a limited company wanting to claim R&D tax credits, according to HMRC guidance he appears to qualify, however he has asked if R&D costs incurred before the (new) limited company was formed would be eligible, I called the R&D tax credits helpline who advised the answer is no, however client has found the following which appears to conflict http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD91100.htm


  • Dcollins
    Dcollins Registered Posts: 179 Dedicated contributor 🦉
    Not sure that link is the right one. Try CIRD81450, which says:

    "CTA09/S1044(5) & CTA09/S1063(4)

    The statute provides that, to be eligible for relief, expenditure within the qualifying categories must have been allowable as a deduction in computing the profit of the trade for which the R&D is relevant."

    If it's expenditure that would be treated as incurred on the company's first day, and the conditions for R&D tax relief are satisifed, I would include it.

    Hope that helps.
  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
    I helped collate eligible expenses for a client's R&D claim a couple of years ago and I'm pretty sure we included pre-trading expenditure & nothing was queried by HMRC. I'll have a look at see if I can find out for certain.
  • Benton
    Benton Registered Posts: 1
    edited February 2018
    Large companies can apply for a Research and Development Expenditure Credit (RDEC) for working on R & D projects. It can also be claimed by SMEs and large companies that have been outsourced to R & D work by a large company. The RDEC is a tax reduction for 11% of your eligible R & D expenses.https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
    Anyone used advanced assurance?

    Did you find it useful?

  • SLee89
    SLee89 Registered Posts: 2 New contributor 🐸
    It's understandable that there might be some confusion surrounding the eligibility of R&D costs incurred before the formation of a limited company. While HMRC guidance typically provides clarity on such matters, it's not uncommon for specific scenarios to present conflicting interpretations or nuances.

    Upon reviewing the link you provided from the HMRC manual (CIRD91100), it appears that there may indeed be conflicting information regarding the eligibility of pre-incorporation R&D costs for limited companies. The manual section you referenced discusses the definition of "qualifying expenditure" for R&D tax credits, stating that it includes certain costs incurred by a company in carrying out R&D activities. However, it doesn't explicitly address the eligibility of R&D costs incurred before the company's formation.

    In situations like these, it's crucial to seek clarification directly from HMRC, as you've already done by contacting the R&D tax credits helpline. Their response indicating that pre-incorporation R&D costs are not eligible aligns with the general understanding of R&D tax credit regulations. Typically, these credits are designed to incentivize ongoing R&D activities conducted by actively trading companies.

    While it's unfortunate that your client's pre-incorporation R&D costs may not be eligible for R&D tax credits, there may still be other avenues to explore for potential tax relief or incentives. It's advisable to consult with a tax professional or specialist in R&D tax credits who can provide personalized guidance based on the specific circumstances of your client's situation.

    In the meantime, it's worth noting that R&D tax credits can still provide substantial benefits for qualifying R&D activities conducted after the company's formation. These credits can help offset the costs associated with innovation and technological advancement, ultimately supporting the growth and competitiveness of your client's limited company.

    For further insights and assistance navigating R&D tax credits for your client, you may consider reaching out to reputable experts or exploring resources available on websites like Alexander Clifford, which specialize in R&D tax credit services.
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