R&D tax credits

How are R&D tax credits accounted for?

This will depend upon whether you use the Research and Development Expenditure Credit (RDEC) or the SME Research & Development tax credit scheme. The major difference between the two is that RDEC is taxable, while R&D tax credits for SMEs are not.

For SMEs, research and development tax credits are accounted for in a relatively straightforward way, as they are non-taxable. Only the tax charge is affected and the benefit is shown below-the-line in your business P&L account, or income statement; as a Corporation Tax credit or reduction. 

Where RDEC claims are submitted, the R&D tax credit will feature in the accounts above the line, positively impacting the pre-tax profit figure. This is classed as taxable income under the RDEC scheme, under 'other income' where a gross credit will be listed in the P&L above the line. 

The RDEC scheme isn't compulsory, however, so seek advice from your R&D tax credit advisor or accountant before selecting the most appropriate treatment for your business.

For R&D tax credits, is it compulsory to restate previous accounts?

For Research & Development tax credits it won't be necessary to restate or refile an amended set of accounts to make a claim. The R&D tax incentive credit claim can be approached as an adjustment from the prior year that is applied to the accounts for the following period. However, R&D tax credits for SMEs are treated differently from an accounting perspective than RDEC claims for large companies. Restating prior accounts to reflect your credits only becomes obligatory when your business accounts are non-compliant with The Companies Act. 

In this situation, it is best to get your accountant to add an adjustment to the following year accounts for prior-year confirmed figures. Our expert team can also help you to time the submission of R&D tax credits so that your tax liability is reduced before the accounting due date and your cash flow is positively affected. The F.Initiatives team will help to ensure that the necessary adjustments are made at the best time for your circumstances as part of a highly streamlined and efficient process.

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