Gateley tax partner, James Gopsill, observed recently that beyond amendments to business rates, HM Government's initial tax assistance package to business mainly targeted late payment of tax and offered time to pay to give breathing space.
The limited nature of these measures makes it more vital than ever for businesses to take full advantage of existing incentives and reliefs. These can reduce tax bills to retain cash or even generate cash rebates from the Government.
Fortunately, there is a range of valuable options available, outlined below. They provide generous tax deductions that reduce taxable profits or increase losses for tax (some or all of which can then sometimes be converted into cash payments to the business). They can boost cash-flow in several ways:
Accelerating claims to reduce tax payments to HM Revenue
Accelerating the work needed to claim relief means less tax will need to be paid to HM Revenue & Customs (HMRC) when the next tax bill is due, and future tax bills may also be lower. Companies with profits less than £1.5 million pay corporation tax nine months and one day after the end of their accounting period. So, those with year-ends of June 2019 onwards are facing imminent tax liabilities. Other larger companies pay in four instalments, so are only ever a few months away from their next payment. Individuals and partnerships usually make payments on account on 31 January in the tax year and 31 July following the tax year, so the July payment will soon be due.
Amend a tax return to claim a repayment
If a claim for relief was possible but overlooked in a recently submitted tax return, a business may be able to refile that return to amend it and claim the relief. Tax will almost certainly have been overpaid, so an immediate cash repayment can be claimed from HM Revenue, and future tax bills may also be reduced.
Claim a payable tax credit
Some tax incentives come with the flexibility for loss-making companies to give up some or all of those losses in return for a cash injection from Government called a ‘tax credit’.
The type of tax relief available depends on the nature of spend incurred.
Capital allowances are available to companies and unincorporated businesses for capital spend (e.g. by occupiers and investors on business facilities or equipment). They can be particularly valuable for commercial property, including the purchase of freehold or leasehold buildings; and substantial construction works such as new-builds, extensions, conversions and major refurbishments.
Retrospective reviews of expenditure by capital allowances specialists can identify significant additional spend that is eligible for tax relief. For building works it is possible to go back indefinitely, as long as the qualifying assets are still owned in the year that the catch-up claim is made. For purchases, it can be more complicated because there is generally a rolling two-year window to claim. But with specialist help, it may still be possible to find opportunities to make retrospective claims.
The tax saving, or cash repayment, is given at the rate of tax paid. Companies can save 19p for every pound of qualifying expenditure. Non-corporates either save 20p, 40p or 45p (and potentially 60p for some income) depending on the marginal tax rate that applies to them.
A hotel company paying tax at 19% refurbished a hotel in its accounting year ended 30 September 2018 but did not claim capital allowances in that tax return. A specialist capital allowances review identifies that £500,000 qualifies for plant and machinery. Amending the tax return to claim those capital allowances could potentially result in a cash rebate of around £95,000.
Land remediation relief
Land remediation relief gives a 150% super-deduction. It is only available to companies but is given for both revenue spend (i.e. property developers/ dealers) and capital spend (i.e. occupiers and investors) on commercial and residential property. It is available for cleaning-up contaminated land or buildings. This typically includes dealing with asbestos, Japanese Knotweed, hydrocarbons, industrial chemicals, heavy metals and so on.
Capital spend generates an additional tax saving of 29p for every £1 of remediation work, the extra benefit for revenue spend is 10p, and tax losses can even be given up to HMRC in return for a cash payment of 24p in the pound.
Research & development (R&D) relief and tax credits
R&D relief is an especially generous tax break for companies carrying out R&D. What counts as R&D for tax purposes is much wider than the traditional notion that R&D is only done by scientist and technologists in white lab coats. Essentially, it is any work that a company is doing or paying someone to do, to solve a ‘head-scratching’ scientific or technological problem that could not readily be solved by a professional in that field without carrying out a systematic project. Gateley Capitus has advised businesses operating in sectors including IT, food and drink, construction, health and life sciences, and even traditional manufacturers.
Most companies may claim a 230% super-deduction, which is worth an extra 25p tax saving for every £1 of qualifying R&D spend. Or if they have losses for tax, these can be given up in return for an especially generous cash injection from HMRC of 33p in the pound.
Patent box is another valuable intellectual property relief that complements R&D relief and can be claimed at the same time. Broadly, it is available if a company owns patents that are incorporated in a product that it sells. Despite the strange name of this relief, a ‘patent box’ is just the reduction of tax on income that falls within the ‘box’ (in other words, that meets the relevant tax definition). The rules and calculation are complicated. But if the conditions are met, the corporation tax rate that applies to the qualifying income is just 10% instead of the normal 19%.
So, the tax saving is 9p for every pound of qualifying expenditure.
These give an additional corporation tax deduction equal to 100% of the expenditure. In effect, a double tax deduction. This provides additional tax relief of 19p for every pound of qualifying expenditure.
Also, if the company has losses for tax purposes these can be given up in return for an immediate cash payment. This is usually 25% of the foregone loss, or sometimes 20% depending on the type of relief and circumstances. So, the cash payment is 9p (or sometimes about 7p) for each pound of loss surrendered.
Like anything in tax, the conditions and practicalities to claim these reliefs can be complex. So, it is important to take care to maximise relief and avoid penalties. For help making the most of any of these reliefs contact your usual Gateley contact.