Business Tax

Latest updates:
Repayment of business rates relief

Repayment of business rates relief

HM Treasury has published arrangements for repaying COVID-19 business rates reliefs provided by each of the four jurisdictions: England, Wales, Scotland, and Northern Ireland. The details are on GOV.UK. The update also confirms the government’s intention to legislate to provide clarity that the repayments of business rates relief should be treated as if they were business rates payments and so should be deductible for tax purposes. The government also intends to specify the timing of the deduction as being the same period as the original payment.

Non-resident company landlords (NRCLs) brought within the scope of Corporation Tax – outstanding CT UTRs

We have received an update from HMRC in relation to the non-receipt of a HMRC letter advising the NRCL of their CT UTR, and the impacts caused by COVID-19.

Corporation tax quarterly instalment payments
HMRC has reviewed and updated its guidance at CTM92650. This guidance covers early repayments of corporation tax quarterly instalment payments in response to receipt of a number of claims and requests from taxpayers, agents and professional bodies. 

This means that companies can, in exceptional circumstances, make earlier claims for repayment of their instalment payments for an accounting period. Regulation 6 of the Corporation Tax (Instalment Payment) Regulations (SI1998/3175) allows for companies to make a claim where, due to a change in circumstances, they believe their liability is likely to be less than previously calculated. A revised calculation of that liability may take into account anticipated losses of the current accounting period that has not yet ended. Companies will need to provide full evidence to support these claims.

The updated guidance provides examples of the supporting evidence that would be required to make a claim. The evidential requirements will depend on the particular facts of the claimant companies.

Coronavirus crisis-driven changes to trading activities
On 3 June 2020 HMRC update their Business Income Manual to add guidance on the implications of crisis-driven changes to trading activities and how HMRC will apply legislation and case law to the changes in business activities - see BIM48000.

R&D Tax Relief
On 2 April 2020 HMRC provided some clarification on matters relating to the R&D Tax relief. The areas covered in the email update from HMRC are:

R&D Returns & Payments 
HMRC confirms that their priority is to maintain their published aim of clearing 95% of SME tax credit claims within 28 days and that currently they are meeting this aim. HMRC will be sympathetic to those facing difficulties in meeting filing or amendment dates and refer to SP 5/01 which explains how HMRC will decide whether each claim will be accepted.
Set off of R&D claims against other taxes 
Where the business has other liabilities owing to HMRC, HMRC clarifies that in the case of RDEC, HMRC has no discretion under the current legislation, and will be operating on the basis of the existing set off provisions. For claims in respect of the payable SME credit, HMRC are considering the position (see further updates below).
Going concern requirement 
HMRC notes that this condition is a statutory requirement so it cannot be overlooked. It is noted that the condition requires the claimant company to have been a going concern according to the last published accounts, which will in many cases have been prepared before the effects of COVID-19. This means that there should not be any issue caused by the going concern requirement. HMRC will continue to monitor the impact of COVID-19 on customers’ ability to meet this and other requirements. 
Government support schemes – state aid? 
The Government has notified the Coronavirus business interruption loan scheme (CBILS) as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure on a project rather than being intended more generally to support the company. This will depend on the facts. HMRC will be monitoring the application of this rule and would welcome feedback.


Further details in the full text extracted from the email from HMRC can be found here.

Update regarding set off of R&D credits against other liabilities (5 May 2020)
With regard to questions around whether R&D claims will be paid in full even where the business has outstanding tax liabilities, HMRC has confirmed that if a VAT liability has been deferred as a result of the measure announced by the government in light of the COVID-19 pandemic, namely the permitted deferral of VAT for the period of 20 March – 30th June (more guidance can be found here), the VAT deferred will not be constituted as a ‘liability owing’ to HMRC and, therefore, the R&D tax credit or R&D Expenditure Credit (RDEC) will not be set off against these VAT liabilities.
However, this is not the case in respect of other outstanding tax liabilities, including any debt in respect of VAT owing to HMRC and arising outside of the specific period allowed for VAT deferrals mentioned above and any tax which is paid late by companies pursuant to an agreement reached with HMRC under the Time to Pay (TTP) service. Our understanding is that in these circumstances the tax liabilities are still considered to be ‘owing’, despite the taxpayer having reached an agreement as to the timing of payment of these liabilities under the TTP service, and, therefore, the RDEC or R&D tax credit will be offset against these liabilities.  


On 28 May 2020 HMRC provided further details of developments in relation to Covid-19 measures and how these apply in respect of R&D Tax relief. The areas covered in the email update from HMRC are:

Update regarding government support schemes – state aid? (28 May 2020)
HMRC confirms that the Bounce Back Loans (BBL), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) are all notified State aid, meaning that s1138(1)(a) CTA 2009 could potentially prevent a claim for SME relief. HMRC has confirmed that they would only expect this to happen where the loan relates specifically to the company’s expenditure incurred on an R&D project, rather than providing general support for the company. This will depend on the facts, and HMRC notes that, for example, a loan used entirely for R&D might lead to s1138(1)(a) applying.
HMRC has also confirmed that the Future Fund, which provides convertible loans that are commercial, are not State aid.  Therefore, they are not caught by s1138 CTA 2009 and need not be considered when looking at the State aid cumulation rules.
HMRC also notes that further loans and grants and other support measures are still under development.  These will be State aid, and s1138(1)(a) CTA 2009 will apply to all of those which are provided through the EU Temporary Framework relating to State aid or through the Grant Block Exemption Regulations.
Update regarding set off of R&D credits against other liabilities (28 May 2020)
HMRC formally expands on the information on R&D payments issue which was mentioned in the 2 April RDCC Update (details of which are set out above):   
  • Where Ministers have agreed that tax can be deferred for a specific regime to support businesses in the COVID-19 period, i.e. the VAT quarterly payment deferrals, RDEC or payable tax credit will not be set against any of those amounts before the revise due date.
  • Where tax has been deferred as part of a Time to Pay (TTP) arrangement, HMRC will follow existing policy and set any R&D tax credit off against any TTP liability, not just the amount owing at the point in time the credit is paid. This would include informal deferrals offered in advance of TTP arrangements being put in place.
  • It is a legislative requirement that any RDEC remaining at Step 6 (s104N(2) CTA 2009) is set-off against any liability owed to the Commissioners for HMRC. HMRC does not have the power to provide for a temporary relaxation of this rule and there are no plans at present to legislate to provide a temporary relaxation of this rule.
  • Credits under s130 Finance Act 2008, including credits under the R&D SME scheme, will continue to can be applied on a discretionary basis. HMRC will consider the particular circumstances of a customer on a case by case basis if they have objections to the credit being set off against other liabilities.


Further details in the full text extracted from the 28 May 2020 email from HMRC can be found here.

On 28 August 2020 HMRC provided an update with details around how HMRC expects companies to deal with staffing costs when calculating their R&D relief and/or RDEC claims for periods in which they had furloughed staff. 

Subsidy rules (s1138 CTA 2009) – SME R&D scheme
HMRC notes that the Coronavirus Job Retention Scheme (CJRS) is not a notified State aid, so when furlough payments are met by the government through the CJRS the specific notified State aid rule at s1138(1)(a) is not in point.
However, HMRC also notes that to the extent that furlough payments are met through the CJRS, the general subsidy rules at s1138(1) do apply, meaning that the expenditure has to be treated as having been subsidised and will therefore not qualify in the SME scheme. The only area where this is likely not to be the case is if annual leave or sick leave is taken during furlough. As I cover later in this update such leave, unlike time spent solely on furlough, is included in the staffing cost calculation.
The staffing cost rules (s1123 and s1124 CTA 2009)
Under the CJRS as the furloughed employees have ceased all work during the CJRS claim period HMRC consider that those employees cannot be regarded as being directly or actively engaged in relevant research and development during those times. This means that during those times the conditions in s1124(2) CTA 2009 are not been met in respect of their costs. HMRC therefore expect to see these costs excluded from R&D and RDEC claims. This applies equally to furlough payments met under the CJRS and to any ‘top-up’ from the company itself.  
With regard to furlough payments made to staff where none of those payments have been met by the Government through the CJRS scheme. As with payments within the CJRS scheme, where furloughed employees have ceased all work HMRC consider that those employees cannot be regarded as being directly or actively engaged in relevant research and development. If some qualifying activity has been carried out then HMRC would expect companies to claim in the usual way and draw their attention to the appropriate proportion rules found in s1124(3) and (4) CTA 2009.
Absence from work for sickness or annual leave
HMRC consider that paying holiday pay and sick pay is a necessary cost of the employees undertaking R&D work and is, in effect, part of the cost of their working time. This means that HMRC allows claimants to apply the same apportionment between qualifying and non-qualifying activities to holidays and sickness as they do to working time. HMRC consider that any period during furlough which is taken as annual leave or is recorded as sick leave can be included in the staffing cost calculation. However, for the reasons outlined above, the staffing costs incurred on leave and sickness during furlough are subsidised to the extent that they are met under the CJRS. Whilst this will not affect companies which only claim RDEC it will prevent this element of the staffing cost from qualifying where a company is making a claim in the SME scheme. The company would however be able to include these staffing costs in a claim for RDEC.
HMRC confirms they will accept a fair and reasonable apportionment when calculating the element of subsidised staffing costs in these circumstances.


Further details in the full text extracted from the email from HMRC can be found here. This topic is also now covered in HMRC’s Corporate Intangibles Research and Development (CIRD) Manual at paragraph 83200 which can be accessed here.

Company Residence and Permanent Establishments

HMRC has issued some guidance in relation to HMRC’s approach to company residence and permanent establishments in response to COVID-19 Pandemic. The key points in the guidance from HMRC are:

HMRC consider that the existing legislation and guidance in relation to company residence and permanent establishments, already provides flexibility to deal with changes in business activities necessitated by the response to the COVID-19 pandemic
Company Residence 
HMRC does not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time. The existing HMRC guidance makes it clear that HMRC will take a holistic view of the facts and circumstances of each case.
With regard to permanent establishments, we do not consider that a non-resident company will automatically have a taxable presence by way of permanent establishment after a short period of time. Similarly, whilst the habitual conclusion of contracts in the UK would also create a taxable presence in the UK, it is a matter of fact and degree as to whether that habitual condition is met. Furthermore, the existence of a UK PE does not in itself mean that a significant element of the profits of the non-resident company would be taxable in the UK.


The full text of the guidance issued by HMRC on 3 April 2020 can be found here. This guidance is now incorporated in HMRC’s International Manual (new paragraphs INTM261010 and INTM120185). The guidance was updated on 5 May 2020 with the addition of one paragraph at the bottom of INTM261010 and two paragraphs at the bottom of INTM120185.