R&D Tax relief and losses to assist cash flow

R&D Tax relief and losses to assist cash flow

Updated 1st April 2020

During these unprecedented times it is likely that many companies will be faced with potential problems and scenarios that are out of the norm. We here at Ward Williams have an experienced team with a wide range of knowledge capable of guiding you through any potential pitfalls that may arise.

Many companies will have experienced a sudden drop in cash flow. With that in mind our Corporate Tax Team have prepared a summary of two areas that may offer potential to help alleviate some of the pressure put on your business by the current situation caused by COVID-19. Should you wish to discuss either of the below areas or potentially other ways in which Ward Williams may be able to assist you please contact us on 01932 830664.

R&D Tax Relief:

In our current situation R&D tax relief is something that any business, that believes they may qualify, should be pursuing. Depending on the financial position of the business it has the ability to either significantly reduce the amount of corporate tax payable or in the case of loss making companies result in claimable tax credits worth up to 14.5% of the lower of total losses or total enhanced expenditure (230% of R&D qualifying costs). Therefore, a R&D claim can generate cash for the business in a relatively short space of time.

While we understand that you may be delaying any planned future expenditure, R&D claims can be completed up to two years after the end of the accounting period in which the expenditure was incurred. A brief overview of potential activity that may qualify as R&D expenditure has been included on this page. However, should you wish to talk to one of our corporate tax team to discuss any potential past, current of future claims please contact them on 01932 830664.  

Work that qualifies for R&D relief must be part of a specific project where the company is taking a business risk to attempt to “resolve scientific or technological uncertainty”. Don’t assume that this does not apply to you as it will be relevant to a wide variety of sectors and not just the ones that are immediately obvious.  The project can involve creating new products, processes or even services, or changing or modifying an existing product, process or service.

The project must relate to your company’s trade - either an existing one, or one that you intend to start up based on the results of the R&D. But note that the R&D does not have to have been successful to make a claim.

 To get R&D relief you need to explain how a project:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • tried to overcome this uncertainty
  • could not be easily worked out by a professional in the field
  • Your project may research or develop a new process, product or service or improve on an existing one.

More detail can be found using the following link: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

The Corporate Tax Team at Ward Williams are experienced in dealing with R&D claims and are able to quickly help determine if a claim is possible as well as the procedure to ensure a claim is successful. Please contact a member of the Corporate Tax Team should you wish to discuss any of the above in more detail.

Tax Losses:

Tax losses is another area of Corporate tax that has come into focus as it can be effective in assisting with cash flow. Dependant on the type of losses that are being brought forward or arising in the current year (which may now be a strong probability for many), there are various ways the losses can be utilised in order to achieve the most tax (and cash) efficient treatment.

It is worth considering that while the more favourable tax treatment may be to use the losses in the current year or by carrying them forward, it may be worthwhile considering if the losses can be carried back. This is particularly beneficial as it produces an immediate benefit of a cash repayment rather than the ‘promise’ of future tax relief in the future. This option has only been strengthened by the recent extension, by the government, in deadlines for any future tax due. Should you wish to discuss the options available to you and which ones may be the most tax advantageous please do not hesitate to contact the corporate tax department on 01932 830664.