Posted: 06 / 08 / 2025

Article by: Ciarán Downs, Associate Director – Allowances, Incentives & Reliefs

Reading between the lines: deciphering UK R&D Tax Claims in Company Accounts. 

If you’ve ever reviewed a set of company accounts and noticed multiple R&D tax claim entries or values that seem out of kilter with your expectations, you might wonder whether this indicates an error or irregularity.

In fact, the presentation in the accounts is likely to reflect the practical (and nuanced!) realities of how R&D tax relief works in the UK. 

UK companies must follow Generally Accepted Accounting Practice (GAAP), with the relevant accounting standards typically being FRS 102 (Section 18), IAS 38, and FRS 105 (Section 13). There is no mandatory requirement for companies to make a specific disclosure in their accounts to make an R&D tax claim. However, the expenditure claimed must be capable of being accounted for as R&D under GAAP. 

Which R&D scheme(s) is the company claiming under? 

Firstly, the presentation of R&D tax claims in the accounts depends on which scheme(s) the company is claiming under: 

  • Under the new Merged Scheme (and the old RDEC scheme), R&D credits are treated as taxable income and appear “above the line” in the profit and loss account, typically shown as “other income”. In other words, the R&D claim is treated as generating ‘income’ in the accounts, making a positive contribution to EBIT. This is a deliberate design feature to increase the visibility of the impact of R&D tax incentives for decision makers and stakeholders. 
  • In contrast, under the old SME scheme and the new ERIS scheme, the relief is not taxable. It may appear “below the line” as a reduction in the company’s corporation tax liability. 

This fundamental difference in the mechanics of the UK R&D tax incentive schemes means that companies claiming under more than one scheme, transitioning between schemes, or with accounting periods straddling scheme changes, may legitimately show a variety of R&D claim-related adjustments in the same set of accounts. 

Prior year adjustments… timing is everything! 

Prior year adjustments are the most frequent reason for multiple or potentially confusing R&D tax claim entries in accounts. Since R&D tax claims are filed within corporation tax returns, and corporation tax returns are often filed after accounts are prepared, many companies include R&D claim estimates in their account filings and adjust these in subsequent periods when actual claim amounts are confirmed. 

Given that R&D tax claims can potentially be filed (or amended) via corporation tax return for up to two years after an accounting period ends, it’s routine to see adjustments for multiple prior years. Another factor to consider is whether the company is claiming R&D tax incentives for the first time, has lapsed in making claims, or is a regular R&D claimant, which will naturally have a bearing on the entries in the accounts. 

In the event of an adverse HMRC R&D compliance check outcome, a previous R&D tax claim could be reduced in value or lost altogether, necessitating adjustments in the accounts. 

Importantly, companies are not required to restate or re-file previous accounts when making R&D claims unless material in the context of the company’s financial statements.  Ultimately, the corporation tax provision in accounts is an estimate, and subsequent changes due to the impact of R&D tax claims can be treated as prior year adjustments in the following period’s accounts. 

Best practice 

Companies should consider the timing of their R&D claim preparation to align with their accountant’s timeline for preparing accounts and corporation tax returns. This allows for inclusion of accurate figures rather than estimates and may provide cash flow advantages.  

Given the complexity alluded to in this article, explanatory notes to the accounts can be used where necessary to clarify R&D claim-related entries for the reader. 

The regulatory landscape for R&D tax relief continues to evolve, with significant changes and enhanced HMRC scrutiny introduced in recent years. Companies should seek professional advice to ensure proper accounting treatment and compliance with all HMRC disclosure requirements in relation to R&D tax claims.