If my client defers payment of their Corporation Tax bill, will their R&D Tax Credits claim be affected?

5th Jun 2020
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The COVID-19 pandemic has brought about a sharp economic downturn, and a large number of our clients are already feeling the strain. For many, the biggest worries are around cash flow management, and how they can pay their staff and bills.

In this article we’ve looked at the Government’s offer of Corporation Tax deferment, how it works and how it can affect your clients' R&D Tax Credits claim.

Time to Pay

The government has extended its Time to Pay service by increasing staff numbers and launching a new helpline which companies can use if they’re concerned about paying their tax bill on time.

Given the ongoing uncertainty, the government is allowing many businesses to defer their tax liability. This will be a lifeline for many, indeed perhaps meaning the difference between sinking and swimming.

Under the extension, companies may get up to 12 months longer to pay their Corporation Tax arrears, which can ease pressure on cash flow. However, it’s important to note that if your clients do defer their Corporation Tax bill, it will probably have an impact on their R&D Tax Credits claim.

Other government assistance

The government has made various promises and unveiled several measures to help businesses and individuals through these turbulent times. Many people and businesses will benefit, but with current measures including:

Business considerations

Before contacting HMRC to defer payment of their Corporation Tax, your client will need to carefully consider how much their business can afford to pay. It’s also worth them doing their homework to understand better how the system works.

Typically, the kinds of details HMRC need to know is how exactly coronavirus has affected the business and why specifically it now can’t afford its Corporation Tax liability. Businesses in certain industries such as travel or retail were more likely to be affected by the lockdown for example, making some cases more straight forward than others.

The point is that HMRC are understandably still being cautious about which businesses should benefit from the extension, so claims will need to be pretty watertight. This is where you’ll need to assist as their business accountant, with generating the necessary calculations perhaps or with collating relevant documents on their behalf. 

What does Time to Pay cover?

The Time to Pay scheme may be used in relation to Corporation Tax, Income Tax, VAT, NICs and PAYE. They generally last 6 to 12 months and are agreed with HMRC to reflect the business’ ability to meet the terms agreed.

How will Time to Pay affect my client’s R&D Tax Credits claim?

This depends largely on their financial situation. If your client’s company has made a relatively small claim but has a very large Corporation Tax liability, then R&D Tax Credits might well be withheld until the debt is settled. On the other hand, if your client has a fairly large R&D Tax Credits claim on the go, but a small Corporation Tax bill, then they will likely have the chance to surrender their losses in favour of a cash credit.

My client wants to claim R&D Tax Credits immediately after deferring their Corporation Tax payment. Is this doable, or should they wait?

This again depends on the company’s financial circumstances more generally, but one thing to note is that the window for claiming R&D Tax Credits is limited. Companies only have a maximum of two years to make their claim, starting from the end of the accounting period in which their R&D work took place. Once that window is closed it won’t reopen again. Additionally, if your client has already paid Corporation Tax for the period when the R&D took place, a cash credit will be administered instead of any further tax discount.

Why it’s important to collaborate with R&D tax specialists, particularly during this time

COVID-19 has meant that the government has had to launch a broad range of financial help to businesses very quickly. As a caring and competent business accountant, keeping abreast of them all and what they mean for your clients is no mean feat!

When you work alongside a specialist R&D tax consultancy like Myriad Associates, we will be available to process your client’s R&D Tax Credits claim from start to finish. Our skills lie in identifying relevant R&D expenditure and providing fully optimised claims, and we closely monitor government updates so you don’t have to.

With COVID-19 financial chaos now in full swing, R&D funding is more important than ever. We are 100% committed to helping you and your clients in any way we can, and our service is second to none.

What else is it about Myriad Associates that means we stand out from the crowd?

As a rule, R&D Tax Credit claims made with the help of Myriad Associates generates a relief that’s up to three times higher than going it alone. We will also take the strain out of answering questions your clients may have about R&D Tax Credits, and will check claims thoroughly before they are submitted to HMRC. We also only give claims the green light if they are completely accurate so you can rest assured they’ll stand up to HMRC scrutiny. And, if any enquiries are raised, we can deal with them on behalf of your clients too.

If you would like to find out more about working with us on your clients' R&D tax relief claims, get in touch by calling 0207 118 6045. Alternatively you can send us a message and we'll get back to you. Our team is working as usual during the COVID-19 outbreak.