Utilising tax incentives to maximise cash flow

Given the impact of the COVID-19 pandemic and associated lockdown, it is more vital than ever for construction and property 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 30 September 2020 year end might choose to shorten an accounting period to 31 March 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 have 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 (CA)

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 (ECA)

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 31 March 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 31 March 2020).

Structures and Buildings Allowances (SBA)

Structures and Buildings Allowances are available at 3% of costs which do not qualify for allowances under the Capital Allowances or ECA regime.

This relief is available where contracts for construction work were entered into after October 2018 and are available on a straight-line basis.

Land Remediation Relief (LRR)

Land Remediation Relief provides a 150% deduction for expenditure incurred in relation to remediating contaminated land. This relief is only available to incorporated businesses but is given for both revenue and capital spend on commercial and residential developments.

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.

Read more about these tax incentives in Issue 15 of our newsletter Real Estate Matters.

Read Real Estate Matters Issue 15

How we can help

A wide range of tax opportunities can arise during an economic slowdown. These actions can assist with cash flow, including a reduction to taxes payable and the payment of tax credits.

Our specialist tax team at MHA Carpenter Box can provide the guidance to help review your business, provide advice on accessing support and assist with identifying additional options for cash flow needs.

If you would like any advice, please contact a member of our team 01903 234094.