Given the impact of the COVID-19 pandemic and associated lockdown, it is more vital than ever for businesses to ensure that they maximise their reliefs and take full advantage of the government’s offerings. These incentives and reliefs can reduce tax payments owed to HMRC, retain cash or potentially generate repayments from HMRC.
WHAT HELP IS AVAILABLE?
There are a range of valuable options available to help provide generous tax deductions and reduce profits or increase taxable losses (some of which can be converted into cash payments).
ACCELERATING TAX CLAIMS TO REDUCE PAYMENTS DUE TO HMRC
Accelerating work needed to claim the tax relief means less tax will be payable to HMRC when this becomes due. Future payments may also be reduced because of this.
If a company shortens their accounting period, they are able to crystallise the relief at an earlier point and could significantly improve their cash flow.
For example, a company with a September 30th 2020 year end might choose to shorten an accounting period to March 31st 2020 so that a claim for R&D tax relief was possible for activities prior to the lockdown.
A key action with such a step is that the accounts need to be prepared to support a claim. Companies House has put forward the option of extending filing deadlines for accounts, but companies wishing to accelerate tax claims may find it more beneficial to prepare accounts so that they are able to support tax claims.
There are also rules regarding how often accounting periods can be changed and in which circumstances.
Capital Allowances are available to both companies and unincorporated businesses for capital expenditure. By carrying out a retrospective review of expenditure by a capital allowance specialist, they will identify significant additional spend that is eligible for tax relief.
ENHANCED CAPITAL ALLOWANCES
Enhanced Capital Allowances are a sub group of Capital Allowances and are entitled to a full 100% first year allowance on items which feature on the Energy Technology List, Water Technology List or satisfy the criteria for those categories of expenditure which do not directly feature. This relief ended on March 31st 2020.
However, it is still possible to amend returns for any recently filed earlier in the year or if expenditure was incurred in the current accounting period (but before March 31st 2020).
RESEARCH AND DEVELOPMENT (R&D) RELIEF AND TAX CREDITS
R&D relief is a particularly generous tax relief for companies who incur expenditure in carrying out R&D. Many SME companies are able to claim a deduction totalling 230%, or if loss making for tax purposes can be surrendered for a cash repayment from HMRC, which can be worth up to approximately 33.5% of losses surrendered.
For larger companies, or grant funded R&D projects, an alternative mechanism called the R&D Expenditure Credit can provide a taxable credit worth up to 13% of the qualifying expenditure.
GET IN TOUCH
For more information maximising cash flow for your business, get in touch with our friendly team of tax and business advisers by contacting Stuart on 01293 227670 or visit our website: www.carpenterbox.com