Date posted: 7th Apr 2020
In addition to the measures introduced by the Government to support businesses through the Covid -19 crisis, businesses should look at their tax position to see if any strategies can be used to generate tax refunds or give a cash flow advantage.
Cash generation measures to consider will include:
a) R&D Tax Credits
R&D tax credits can generate sizable cash repayments of between 33p and 44p per £1 spent on eligible Research and Development for small and medium sized companies. For larger Companies, the cash repayments are slightly over 10p per £1 of qualifying expenditure. Many companies are missing out on claiming R&D tax credits, as they often do not realise that they are eligible to make a claim. If you are unsure of whether you can make a claim, please give us a call so that we can discuss whether you will qualify.
b) Carry back of trading losses
Trading losses can be carried back and set against profits from earlier years in order to generate tax repayments. Companies should consider accelerating the submission of its accounts and tax computations to HMRC in order to obtain the tax repayments more quickly.
c) Extending or shortening accounting periods
The accounting year end for a company is not necessarily fixed. It can be shortened or lengthened. Companies should consider shortening their accounting periods in order to generate tax repayments from the carry back of trading losses. In certain circumstances , extending an accounting period from 12 months to say 18 months may also generate cash flow advantages.
d) Generating personal tax refunds
For certain taxpayers, especially those involved in the CIS regime, it may be beneficial to complete and submit their 2019/20 tax returns as soon as possible in order to generate tax refunds.
e) Crystallising capital losses
If a company has made capital gains in the accounting year, and is holding some quoted investments in its balance sheet which are standing at a capital loss, consider crystallising some of the capital losses in order to shelter the previously made capital gains from tax.
f) Protect your business going forward.
As your business moves forward through these uncertain times, you should give some thought as regards how you can protect the business and its assets into the future. The structure of your business should be looked at carefully, as it may be possible to ring-fence certain activities or assets into separate companies, and protect them from future creditor attack. This re-structuring work can often be undertaken in a tax efficient manner.
g) Coronavirus Job Retention Scheme
HMRC guidance was updated over the weekend (see the link below), and now gives clearer advice of who can claim, and the guidance specifically covers the issue surrounding the furlough of company directors.
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme#history
If any issues raised in this article are of interest for you, your family or your business, please contact our Tax team here or call us on 01325 349700.
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