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Markel Tax

27 Apr 2020

How a claim for R&D tax relief can help your business cash flow now

During these times of uncertainty your business may be suffering from a significant reduction of income and having to call on capital reserves to keep afloat. The UK Government has issued a range of measures to assist businesses and, hopefully, you have been able to secure some of the different reliefs available.  

One longstanding tax relief that is available to companies is for those engaged in Research & Development (‘R&D’). This might conjure up images of scientists on the front line of medical research or an engineer working on a spaceship but it applies to a much wider range of companies and is often overlooked because of the associations with science and medicine. As an example, we have helped secure tax relief for companies involved in the production of food and drink, clothing, beauty products and car parts. Some of these companies have been working to develop their own ideas whereas others have had to develop new processes in order to meet the demands of their customers – both of which can qualify for R&D relief.

The good news is that HMRC have committed additional resources to the processing of R&D tax relief claims during these times - in practical terms this means that companies are receiving cash back from HMRC within 10 days of submitting the claim. This is an unprecedented speed of processing and gives companies a vital cash injection which, unlike the deferral of VAT and Self-Assessment payments, is not simply an easing of cash flow now but an introduction of new cash into the business.

The income from an R&D tax relief claim might be the only cash coming into the business at the moment so if your sales channels have dried up it is worth revisiting this area to see if a claim can be made.
A quick overview:

  • Claims can be made for any accounting period that ended within the last two years, so this means that work done at any point from April 2017 can be considered for a tax relief claim.

  • There is no need to wait, if your accounting period ended on 31st March 2020 (for example) then you can make a start on the claim now.

  • If you are a loss-making company, or the additional R&D claim pushes the company into a tax loss position then that loss can be surrendered to HMRC for a cash repayment.

  • The claim can be worth up to 33p for every £1 spent on R&D activity.

If the directors of the company have been furloughed then HMRC guidance allows for those directors to undertake statutory duties as required by legislation, this includes the filing of tax returns and company accounts. Further, as members of the HMRC R&D Consultative Committee we have been advised that a claim for R&D tax relief can be made even if the company is effectively in ‘hibernation’ and is not trading at the moment.

Finally, if your company has incurred significant expenditure on R&D activity then it may be worth shortening your accounting period in order to start a claim for R&D tax relief earlier than you ordinarily would. 

For advice and assistance with R&D claims contact James Clark on 0144 2128268 or  james.A.clark@markel.com.
 

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Next article in series

27 Apr 2020

R&D and the Construction Sector – Building a claim