HMRC confirms R&D repayment claims will not be offset against tax liabilities under deferral agreements

RSM has contacted HMRC’s policy team to ask how R&D repayment claims will be treated in light of the government’s support schemes to help businesses cope with the coronavirus outbreak. The good news is that HMRC has confirmed that the SME repayable credit and the RDEC payable amount (which are normally offset against other tax liabilities due, before being repaid to a company) will not be subject to offset against tax deferred under a coronavirus scheme. This means that if your business has, for example, deferred its VAT liability until 31 March 2021 these R&D repayable claims will still be repaid to the company.

Both the SME repayable credit and the RDEC payable amount are subject to legislation that enables HMRC to offset the repayable against any amounts of tax owing before repaying the remaining balances due. This led to concerns that an unintended consequence of the recent measures would be to reduce the benefit of these R&D tax reliefs. 

In response to these concerns, RSM contacted HMRC’s policy unit, which has advised that there is a distinction between ‘tax owed’ (for example under the terms of a Time-to-Pay agreement) and ‘tax deferred’ (for example VAT deferred under the deferral scheme). Where a ‘deferral’ is agreed with HMRC, the relevant tax(es) are no longer ‘owing’ for the purpose of the R&D offset legislation. As a consequence, HMRC says its processing teams have been advised that no set-off of amounts owed against R&D amounts repayable is either required or appropriate. Therefore, VAT deferred under HMRC’s coronavirus scheme will not be offset against these R&D tax reclaims, meaning that repayable amounts will still be issued to companies with deferred VAT liabilities. Businesses that have contacted HMRC’s dedicated coronavirus team to agree a deferral of tax (CT, PAYE or otherwise) due will also benefit from these R&D claims. 

So, for now, it would appear that R&D amounts repayable will continue to be repaid by HMRC, even if the business takes up the government’s offer to defer its VAT return liability falling due between 20 March and 30 June. This position is expected to change once the deferral period comes to an end and companies seek to agree specific TTP arrangements.

However, HMRC also noted that Time-To-Pay (TTP) agreements for VAT and other taxes are treated differently, and are ‘tax owed’ - so an offset will be applied against these amounts. HMRC says TTP does not stop the liability being ‘owed’, but rather establishes an agreed payment plan to settle the liability over a longer period of time. If a company had a TTP agreement in place and subsequently submitted a claim for an R&D repayable amount, that amount would most likely be offset against the amounts owing. Businesses with such arrangements in place should review their position. 

For more information on R&D tax credits, please contact James Tetley or Philip Munn.

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