9TH JUNE, 2020

What Is A 'Going Concern' And How Does It Affect R&D Tax Credits?

Back in March, the government unveiled a series of measures to support businesses during the COVID-19 pandemic. We covered them in our recent blog on the subject which you may find useful.

The help was of course welcomed by vast numbers of businesses who have been damaged by the wholly unpredictable situation they found themselves in. However, for companies that are looking at taking on a Coronavirus Business Interruption Loan (CBILS) or who have already done so, will need to fully understand the implications against any ability to claim R&D Tax Credits. The ‘going concern’ issue is also important here.

What is a ‘going concern’ exactly?

The concept of a ‘going concern’ is an accountancy term that’s used to describe a company which is not at any particular risk of liquidation in the short or medium term. That is to say, it plans to remain in operation for the foreseeable future.

The opposite of a company being a going concern would therefore be one which is facing formal insolvency, or which is continuing to trade whilst insolvent. Being clear about whether your business is a going concern or not is a critical aspect of insolvency practice for directors. It can mean the difference between operating normally and having to cease trade with a view to liquidating company assets.

Assessing your company’s going concern status

This is where three pieces of legislation come in: the UK Generally Accepted Accounting Practice for medium and large UK companies (UK GAAP), the Financial Reporting Standard for Smaller Entities (FRSSE) and International Financial Reporting Standards as adopted by the EU (IFRS). If you take a look at these, you’ll see that they all require directors to conclude whether it’s appropriate to prepare financial statements on the basis of being a going concern. Directors therefore need to be careful in considering any difficult economic conditions or expected financial difficulty (like COVID-19) when making their assessment. Where there is any question that your company many not continue to be a going concern, it’s recommended you seek legal advice.

The going concern requirement is important when applying for R&D Tax Credits

There are two key things that can’t be ignored when it comes to being eligible for R&D Tax Credits. The first is whether or not the company has received state aid, and the second is whether it’s truly a going concern.

Foreseeable future for going concern purposes is regarded as being solvent and operational for at least the next 12 months. Unfortunately, with COVID-19 bringing a massive financial hit on many UK businesses, their going concern status could now be threatened where it wasn’t before.

HMRC is actively monitoring the impact of COVID-19 on the ability of companies to meet the going concern requirement. This has meant that many companies looking to claim R&D tax relief will need to reconsider whether they actually still qualify.

Smaller companies

For smaller companies, ascertaining whether they are a going concern should be fairly easy. If a business is not subject to an auditor’s report, an accountant may go over the figures to make sure they’re accurate and fair. Remember here that certain things can jump out at HMRC as suggesting the accounts are not fair, which means going concern status should be reassessed. These can include:

  • Paying suppliers and other invoices late
  • Having a poor cash flow or a negative cash flow forecast
  • An insolvent balance sheet
  • Lack of significant contracts
  • Losing a large client or supplier very recently
  • Difficulties in getting credit from suppliers
  • Pending litigation issues

Unsure whether your company is a going concern or not for R&D tax relief purposes?

If you are not sure about whether your going concern assumption is accurate, or there is a threat of impending company insolvency, then we strongly advise contacting us regarding your R&D tax relief eligibility. The team at Myriad Associates can provide free, professional advice as to the best course of action for your business.

Can SMEs still claim R&D Tax Credits if they receive CBILS funding?

The CBILS is classed as notified State Aid under the European Commission’s new COVID-19 Temporary Framework. When a company receives state aid, it likely then means that although it’s not necessarily barred from R&D Tax Credits altogether, it may end up receiving less money. This is because it will need to use the less generous RDEC scheme instead of the more lucrative SME scheme, regardless of its size or turnover. See our blog for more: R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC?

Under the RDEC regime, as of the 1st April 2020 the available tax relief is now worth up to 10.53% of eligible R&D expenditure. This compares to the more valuable SME scheme rate of up to 33%. However, it’s still highly worth making a claim, as everything from staff wages and employer NICs/pension contributions to overheads and materials can be claimed for. Discover more about claimable expenditure.

With COVID-19 causing financial havoc across many UK industries, now is the perfect time to claim R&D Tax Credits

Perhaps your company has created a brand new product, process or service from scratch, or has significantly improved an existing one? Perhaps it designed a new process, where a specific uncertainty was addressed? Well, the good news is, regardless of what sector your business is in, if a scientific or technological advancement has been made then R&D Tax Credits eligibility is likely.

Our Tax Cloud portal for businesses is extremely popular as it offers a quick and simple way of calculating and compiling your company’s R&D Tax Credits application. It’s fully guided but you do the data inputting yourself, making it a cost-effective way of creating your application. The portal will also help you to maximise your claim along the way, and we check each one thoroughly before submission to HMRC. So you can rest assured you’re receive exactly what you’re owed, hassle free.

Got a question or simply need some advice? Call our team on 0207 360 4437, or if you'd prefer you can drop us a message. We're working as usual during this time.
Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
Powered by Myriad Logo

Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
JEan Rollinson Jean Rollinson Senior Technical Analyst/Writer
Rabia Mohammad Rabia Mohammad Corporate Tax Associate