Category: Corporation Tax

Tax refunds for dissolved companies

Dissolving a company ends its legal existence — but unresolved assets become property of the Crown under bona vacantia. Directors must act carefully to settle assets and liabilities before dissolution, avoiding costly mistakes and lost opportunities.

Dissolving a company is a formal legal process that marks the end of its existence. While this process may seem straightforward, it is essential for directors and company officers to understand the legal and financial consequences that arise once a company is dissolved. In particular, in relation to outstanding assets, liabilities, and the principles of bona vacantia.

A company legally ceases to exist upon dissolution. From that point forward, it can neither undertake activities nor receive assets, including tax refunds. It is therefore the responsibility of the company's directors to ensure that all assets and liabilities are appropriately resolved prior to the dissolution taking effect.

Any assets or rights (excluding liabilities) that remain within the company at the date of dissolution automatically pass to the Crown as bona vacantia, a legal doctrine meaning “ownerless goods.” The management of bona vacantia assets is delegated to different bodies across the United Kingdom depending on the company's location, but all act on behalf of the Crown.

Importantly, only companies that have been formally dissolved fall under bona vacantia. Companies that are in the process of liquidation or being wound up are not yet subject to these rules, as they are still legally in existence. Until dissolution is complete, the company retains ownership of its assets and rights.

In certain circumstances, it may be possible to restore a dissolved company to the Companies Register if the dissolution occurred within the last six years. Restoration would reverse the effects of bona vacantia, reinstating the company’s rights to its previously held assets. However, this process can be complex, time-consuming, and should not be relied upon as a remedy for poor planning.

Definition of R&D for tax purposes

When claiming tax relief or capital allowances on R&D, it’s crucial to ensure activities meet strict statutory definitions. Understanding Section 437 ITA and DTI guidelines is key to securing legitimate tax benefits and avoiding costly mistakes.

An activity is generally considered as R&D if it meets two key criteria:

1. It is recognised as R&D under standard accounting practice; and
2. It satisfies the specific conditions set out in the Department of Trade and Industry (DTI) guidelines.

In addition, the definition of R&D for Capital Allowances purposes includes oil and gas exploration and appraisal activities. These are defined as operations conducted with the objective of:

• Searching for petroleum within a defined area; or
• ascertaining the characteristics, extent, or reserves of a petroleum-bearing area in order to assess the commercial viability of extraction.

The legislation also allows for the definition of R&D to be further clarified or restricted by secondary regulations made under ITA/S1006. These regulations may either designate certain activities as qualifying R&D or exclude specific activities from being treated as such.

For the purposes of Research and Development Allowances (RDA), any activity defined as R&D under ITA/S1006 regulations must be treated accordingly. Conversely, if an activity is specifically excluded by regulation, it must not be considered R&D for RDA claims.

R & D clearance consultation

Following the Spring Statement, HMRC is inviting feedback on the idea of expanding the use of advance clearances for R&D tax reliefs, aiming to reduce errors and fraud, provide businesses with more certainty, and make the overall process smoother for taxpayers.

This R & D clearance consultation will explore whether an advance clearance system could achieve these objectives and how it might be structured. The consultation is open for comments until 26 May 2025, and responses are welcomed from businesses that currently claim or plan to claim Research and Development reliefs, as well as industry groups and agents.

The consultation focuses on three main goals:

• Reducing errors and fraud
• Improving the customer experience
• Providing certainty to businesses

HMRC is clear that R&D tax reliefs should be simple to access, predictable, and provide clear assurance to legitimate claimants. This clarity is crucial for businesses to plan effectively and increase their R&D investments. While these goals are separate, they are closely connected.

HMRC acknowledges that the current voluntary R&D 'advance assurance' process hasn’t been as widely adopted as anticipated. The consultation will also look into whether voluntary or mandatory assurances would be more beneficial and outlines the various options under consideration.

In addition, a separate consultation has been launched to explore a new process that would offer increased tax certainty upfront for large-scale projects. This consultation will close on 17 June 2025.

Group relief for trading losses

Group relief helps reduce the overall Corporation Tax of a group of companies by allowing them to share losses. For example, if a parent company has profits of £1,000 and its subsidiary has losses of £100, the group is treated as making £900 in total profits for tax purposes, instead of paying tax on the full £1,000. The group would then pay tax on the £900.

Group relief lets one company transfer its losses to another company within the same group, but it doesn’t treat the group as a single entity for tax purposes. Each company remains a separate legal entity. The surrendering company must actively consent to the claimant company utilising its losses.

Key points of group relief:

• Losses and certain other amounts can be transferred between companies in the same group.
• The amount that can be claimed is the lower of the surrendering company’s available losses and the claimant company’s total profits.

There are special rules that apply:

• to UK permanent establishments of companies resident outside the UK and overseas permanent establishments of UK resident companies, if there is the possibility of relief being given in a jurisdiction other than the UK,
• if there are arrangements that could affect the group relationship, or
• if the loss arises to a 75% subsidiary resident in an European Economic Area territory.

Tax relief for structures and buildings expenditure

Maximise your tax relief with the Structures and Buildings Allowances (SBA). If you have invested in new or renovated commercial structures, you could claim 3% relief annually—saving you money for the next 33 years!

The Structures and Buildings Allowances (SBA) allows for tax relief on qualifying capital expenditure on new non-residential, commercial structures and buildings. The relief applies to the qualifying costs of building and renovating commercial structures.

The relief was introduced in October 2018 at an annual capital allowance rate of 2% on a straight-line basis. The annual rate was increased to 3% from April 2020, and the corresponding period reduced to 33 and one third years. The rate has remained fixed since then and will remain at the same rate for the 2025-26 tax year.

HMRC’s guidance sets out the process for making a claim. In order to make a valid claim a written allowance statement is required. 

The allowance statement must include:

• information to identify the structure, such as address and description;
• the date of the earliest written contract for construction;
• the total qualifying costs; and
• the date that you started using the structure for a non-residential activity.

The claimant must also meet the necessary requirements in respect of the building itself and the chargeable period for the claim. 

The start date of the claim is the later of the following two dates:

• the date when you started using the structure for a qualifying activity; and
• the date that you’re due to pay for the structure or construction.

No relief is available where parts of the structure qualify for other allowances, such as plant & machinery allowances.

Tax relief for zero emission cars and electric charge points

Great news for businesses! Tax relief on zero-emission cars and EV charge points has been extended until 2026. This move aligns with the UK’s ambitious Zero Emission Vehicle mandate, driving the shift to sustainable transport.

It was announced as part of the recent Autumn Budget measures that the tax relief for businesses acquiring zero-emission cars or installing electric vehicle charge points is to be extended. The reliefs were set to expire on 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes.

This measure extends the availability of the 100% first-year allowance for qualifying expenditure on zero-emission cars and the 100% first-year allowance for qualifying expenditure on plant or machinery for electric vehicle charge-points to:

• 31 March 2026 for Corporation Tax purposes
• 5 April 2026 for Income Tax purposes

The extension to the scheme highlights the government’s commitment to continue to support the growth in the electric vehicles market in line with the zero emission vehicle (ZEV ) mandate.

The ZEV mandate sets out the percentage of new zero emission cars and vans that manufacturers will be required to produce each year up to 2030. 80% of new cars and 70% of new vans sold in Great Britain will now be zero emission by 2030, increasing to 100% by 2035.

Could you claim R&D relief?

From April 2024, UK businesses can access enhanced R&D tax relief through the merged RDEC and new ERIS schemes. With generous deductions and credits for R&D-intensive projects, the schemes offer tailored support to fuel innovation and drive growth.

Research and Development (R&D) tax reliefs are designed to support UK companies engaged in innovative science and technology projects. As of April 2024, the R&D Expenditure Credit (RDEC) and the Small and Medium Enterprise (SME) Scheme were merged. The new R&D expenditure credit (RDEC) and enhanced R&D intensive support (ERIS) came into effect for accounting periods beginning on or after 1 April 2024. While the expenditure rules for both are the same, the calculation methods differ.

The merged RDEC scheme is a taxable expenditure credit available to eligible trading companies subject to UK Corporation Tax. Even if a company qualifies for the ERIS, it may choose to claim under the merged scheme instead, but both schemes cannot be claimed for the same expenditure.

Although the calculation and payment processes for the merged RDEC scheme are similar to the previous RDEC scheme, there are some key differences:

• Small profit-making and loss-making companies benefit from a lower rate of notional tax restriction.
• A more generous PAYE cap applies.

The merged RDEC scheme is subject to Corporation Tax, as it is considered trading income.

The ERIS scheme provides additional support for loss-making, R&D-intensive SMEs:

• They can deduct an extra 86% of their qualifying costs (in addition to the 100% deduction already included in their accounts), resulting in a total of 186% of qualifying costs being deductible when calculating their adjusted trading loss.
• They can also claim a payable tax credit, which is not taxable and can be worth up to 14.5% of the losses available for surrender.

There have also been significant changes regarding the availability of relief for overseas R&D activities, which are now more restricted.