13TH AUGUST, 2020

Can I Reduce My Corporation Tax Due To COVID-19?

Considering the options

Luckily, businesses in Ireland can reduce their Corporation Tax at this time - and there are a couple of key ways of doing it. Of course, what the best action is depends on your company’s unique situation. Here we take a look.

1. Accelerating losses available for Corporation Tax refunds

If your company has made a loss then it can offset these losses against profits that arose in the previous financial year. However this can only be done once the subsequent accounting period has finished, and the accounts and tax return for that period have been prepared.

Companies whose financial year has already ended for example should prepare their accounts and corporate tax return as soon as possible to benefit most from corporate tax losses.

For example:

Company A

Company A has earned profits of €100,000 in the year ending 30th August 2019. However due to COVID-19 (or indeed something else entirely) it expects to make a loss of €100,000 for the year ending 30th August 2020. If the accounts for the year ending 30th July 2020 are finalised promptly, and the tax return filed, then the losses of 2020 could be set against 2019 so bringing about a refund of corporation tax paid.

Company B

Unlike Company A, Company B’s financial year is instead due to end on the 31st December 2020. In order for it to avail of the refund as Company A has done, it could decide to change the financial year end to an earlier date. Otherwise, the accounts and tax return may not be completed until at least 2021.

So if we carry on with the above example, Company B could change to a year end of 30th August 2020, before finalising the accounts and calculating the trade loss as soon as possible in September. The loss can then be proportionally offset against profits from the 2019 financial year end. This would bring about an accelerated Corporation Tax refund for the 2019 liability, or mean no liability at all for 2019. This last part of course depends on when 2020 accounts are completed, and having a completed return for 2019. The time frame would also be extended for when the tax liabilities and accounts for the more profitable financial year must be prepared and filed.

2. Claiming R&D Tax Credits early

If a company has successfully made a claim for R&D Tax Credits based on the expenditure for a qualifying project, the money it then generates can be used in a number of ways. Typically the tax credit is administered in equal instalments over three years, starting with the period in which the credit is first claimed. However, in light of the COVID-19 turmoil, Revenue will expedite R&D Tax Credit instalments so they’re all paid in 2020 (subject to checks). This then brings forward payments that would usually have been received later on, so that companies in Ireland can avail of the benefit much more quickly. And as cash generated from R&D Tax Credits can be used exactly as the company sees fit, it could help to pay off debts or suppliers, or simply to boost cash flow. It can also of course be reinvested into further R&D projects.

Why else is it worth claiming R&D Tax Credits as quickly as possible?

Making a retrospective claim is likely to be more difficult for a number of reasons. Locating all the relevant facts and figures from time long passed can be laborious - and let’s face it, it’s hard enough remembering what you did last week let alone last year! Then you’ve got the human element to consider. Staff who played a key role in the R&D process may have left, or may not still have the records you need for your claim. Your employees are busy getting on with their day jobs, so they probably won’t thank you for the extra workload either.

R&D Tax Credit claims that are made in real time, or very soon after the project has finished, are likely to be more accurate. It’s also easier to make your claim when the methodology and challenges your company faced are clear in your mind. Additionally, if your company has also received Research Development and Innovation (RD&I) grants, or can take advantage of the Knowledge Development Box (KDB), then the records kept may well evolve throughout the innovative work. In other words, grant application information can also be used for R&D Tax Credit claims and for KDB.

Before we go, there’s news for Ireland’s self-employed

We wanted to flag up some important news about income tax loss relief for those who are self-employed.

On the 23rd July 2020, the Irish government unveiled a new one-off income tax measure that will ease pressure on SMEs and start-ups in particular. It is designed to help self-employed individuals who, due to the COVID-19, are making a loss in 2020 but made a profit in 2019.

Sole traders or members of partnerships who are continuing to trade this year will be able to utilise a maximum of €25,000 worth of 2020 losses (plus certain unused capital allowances) against 2019 profits.

Further details are expected soon - stay updated by regularly checking the Citizens Information webpage on the subject.

Has your company undertaken any innovative projects lately?

Then why not use our R&D Tax Credits calculator to see what you could claim? After that, you can make your fully guided, maximised application using the Tax Cloud portal developed by the R&D experts at Myriad Associates.

Simple to use and excellent value, the portal’s ideal for Irish companies with more straightforward tax affairs or who have previously made an R&D Tax Credit claim. SMEs also love it because it cuts down application costs whilst still avoiding the potential pitfalls.

With up to 37.5% of R&D costs available to claim back, even the smallest projects can be worth thousands of euros - don’t miss out!

If you would like to discuss anything we’ve raised in this article, call us on +353 1 566 2001 or you can fill in our contact form.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
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Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant