Rarely is looking at the tax position considered by businesses to be a cash-generative or, at least, cash-preserving opportunity. However, in these challenging times when businesses are focusing on cost reductions, the potential benefits of looking at the tax position can be significant in terms of tax refunds and cash flow.
In addition to various packages of support introduced by the government to help businesses during the COVID-19 crisis such as launching the Job Retention Scheme, deferral of VAT payments and support for the self-employed, the following areas should be considered:
- R&D tax credits can generate cash repayments of between 33p and 44p per £1 spent on qualifying R&D for small or medium sized companies. For larger companies, the cash repayments are just over 10p per £1 spent on qualifying R&D.The biggest misconception appears to be what constitutes qualifying R&D activities for tax purposes and often companies do not realise that they are eligible to claim R&D tax credits.
- Trading and other losses can be relieved in a number of ways either by reducing corporation tax in current and future accounting periods as well as generating cash repayments by being carried back to the preceding 12 months.There are further options for relieving trading losses for groups of companies and where trades are discontinued by possibly extending the relief to the preceding 36 months.
- Review of the tax position is considered by us when preparing a business’ tax return. However, claims for capital allowances and land remediation as well as other claims are often limited due to the lack of cost breakdowns and information.We can carry out the necessary reviews and identify ways to overcome the lack of information to make the necessary claims which again may generate a cash repayment.
It is also worth considering accelerating claims referred above by shortening accounting periods and submitting corporate tax returns sooner to HM Revenue to generate the cash repayments.
Business protection measures
- Business structures should be reviewed continually from a commercial, legal and tax perspective as businesses often carry out a number of activities and hold a number of valuable assets such as properties. Ring-fencing these activities or assets into separate companies or a new-holding company can often be achieved in a tax-neutral manner.
- Debts between connected companies and from shareholders should again be considered to protect businesses, strengthen their balance sheet where further external lending is sought. Cleaning these debts up can often be achieved in a tax-efficient manner.
In summary, the current COVID-19 crisis presents huge challenges for businesses, however, it also gives rise to opportunities to the review tax position and potentially generating or preserving cash. Again, reviewing current structures and balance sheets should be carried out to protect businesses.
Please note that the Coronavirus Business Interruption Loan Scheme (CBILS) is considered Notified State Aid and could prevent a claim for R&D tax credit under the SME scheme, although you may still be able to benefit at a reduced rate under the RDEC scheme.
If you need urgent assistance on how we can help improve your tax position, please contact us.