HMRC have confirmed in recent correspondence with the Chartered Institute of Taxation (CIOT) how the going concern rules with regard to intra-group transfers should be applied.
What are the rules?
Under the Research and Development (R&D) rules, there is a requirement that an R&D claimant is a going concern at the time the claim is made in order to claim an R&D Expenditure Credit (RDEC) repayment (for loss making companies) or to make a claim under the old SME scheme. The going concern test includes a requirement that the latest published accounts are prepared on a going concern basis.
However, where a company’s accounts are prepared other than on a going concern basis (only because there had been a transfer of a trade to another group company in the year of the accounts), the transferor company will be treated as meeting the going concern test for that period and can access R&D benefits.
This is important so that companies do not miss out on R&D tax relief as a consequence of a group trade transfer.
What is the issue?
HMRC have confirmed, however, that the transfer of the trade must happen in the accounting period where the accounts are prepared on a basis other than a going concern by reason of the trade transfer to another group company. This could lead to unexpected tax consequences as is best illustrated by way of the following examples published by HMRC.
Example 1
Company A prepares its accounts to 31 December each year. On 24 December 2026, it transfers its trade including its R&D activity to Company B, another member of the same group. Company A’s accounts for the period ended 31 December 2026 are prepared on a basis other than a going concern because of the transfer of its trade to Company B.
Company A would be treated as a going concern for the accounting period ended 31 December 2026 if the accounts for that period were the most recently published. This is on the basis that the only reason the accounts are not prepared on a going concern basis is that there has been a transfer of the trade to another group company in that same period in which the accounts have not been prepared on a going concern basis.
Example 2
Company A prepares its accounts to 31 December each year. On 5 January 2027 it transfers its trade and R&D activity to Company B, another member of the group. Company A’s accounts for the period ended 31 December 2026 are prepared on a basis other than going concern because of the transfer.
Company A would not be treated as a going concern for the accounting period ended 31 December 2026 if the accounts for that period were the most recently published, because the transfer took place outside of the relevant accounting period.
Why is this important?
If companies that do R&D are planning on a group reorganisation, care will need to be taken to consider both the tax and accounting implications of the transfer, with particular attention given to the timing of the transfer in order to manage the R&D tax position and avoid any unexpected tax consequences. If you are planning to transfer trading activities intra-group, then this will be an issue you should plan for in advance along with the wider tax implications. Please contact the authors or your usual ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in the UK contact if you would like to discuss this issue.
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