Research & Development Tax Relief - a possible cashflow boost?
Updated 29 May 2020
As well as the new measures announced by the chancellor at the Budget and in his press conference on 17 March, there are existing tax reliefs available that can assist a company’s cashflow position during these challenging times. In particular, companies should be considering if they have undertaken activities that would be eligible for R&D Tax Relief. This could be worth up to 24.7p in additional tax relief for every £1 that is identified as R&D cost and can result in a tax refund being received from HMRC, especially where no R&D claim has been made previously by the company. Our experts in this field would be more than happy to assist in determining if you qualify for this tax relief. Please contact Phil Hartley for further information (firstname.lastname@example.org / 0161 817 6100)
Where a business incurs a trading loss as a result of the COVID-19 uncertainty, it is possible for the business to carry this loss back against the previous year’s profits. This provides a tax refund to the business which assists with the business’s cash flow needs. To be able to make this claim, the year-end accounts will need to be prepared and be ready for submission and, therefore, it is important that the records are provided to the accounts team as soon as possible post year-end so the claim can be submitted.
When will this be available?
By way of example in terms of timeframes and deadlines, at the time of writing the earliest claim would be for companies with year ended 30 April 2018. The deadline for submitting a claim for qualifying R&D expenditure would be 30th April 2020.
How long will it take for HMRC to process my claim?
HMRC have recently stated that they aim to continue to process 95% of SME tax credit claims within their stated aim of 28 days from submission and they have implemented contingency measures to attempt to ensure this aim can be met. We will update you further of any changes to this timescale.
What if I have missed the deadline for submitting an R&D claim because I was suffering from Covid-19 symptoms?
HMRC have indicated that they will be sympathetic to those who were unable to submit a claim in these circumstances and have advised that the claim should be submitted as soon as possible. For example, if you missed the submission deadline for 31 March 2018 claims, which was 31 March 2020, then this claim should be made as soon as possible. This is not a guarantee that the claim will be accepted, but HMRC will at least consider the claim in accordance with their late submission rules.
Will my R&D tax credits be offset against other outstanding tax liabilities?
If the claim is made under the RDEC scheme then this will be the case as this is the process that has to be followed under the legislation. However, HMRC have confirmed this will not be offset against the VAT deferral that has been introduced.
On 28 May 2020, HMRC confirmed the following position for claims under the SME scheme:
- Deferred liabilities – Where tax can be deferred for a specific regime to support businesses in the COVID-19 period, i.e. the VAT quarterly payment deferrals, RDEC or payable tax credit will not be set against any of those amounts before the revised due date.
- Time to Pay Arrangements - Where tax has been deferred as part of a Time to Pay (TTP) arrangement, HMRC will follow existing policy and set any R&D tax credit off against any TTP liability, not just the amount owing at the point in time the credit is paid. This would include informal deferrals offered in advance of TTP arrangements being put in place.
- Credits under S130 Finance Act 2008 - Credits under s130 Finance Act 2008, including credits under the R&D SME scheme, will continue to be applied on a discretionary basis. HMRC will consider the particular circumstances of a customer on a case by case basis if they have objections to the credit being set off against other liabilities.
Will the Going Concern requirement impact my R&D claim?
HMRC have confirmed that they will assess the Going Concern requirement based on the information provided in the submitted accounts for the R&D periods being submitted rather than based on the current situation. Therefore, in the majority of circumstances, the Going Concern requirement should not impact a R&D claim for an earlier period.
Will any of the new Government schemes to support businesses be classed as State Aid and therefore potentially impact my ability to claim under the SME scheme?
HMRC has confirmed that the Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loans (BBL) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) is classed as notified state aid. Therefore if CBILS, CLBILS or BBL are received to directly support the R&D activities of a company then this will impact the ability to claim under the SME scheme for the R&D work being currently undertaken. It is important that any documentation supporting the loans makes it clear that the funds are being used for general support of the ongoing business activities rather than a specific R&D project.
However, it has been confirmed that the Future Fund loans are not classed as State Aid due to their convertible and commercial nature and therefore these will not impact the ability of a company to claim under the SME scheme in the future.