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  3. Will HMRC offset my R&D tax credit against other taxes I owe?

Will HMRC offset my R&D tax credit against other taxes I owe?

In some circumstances, yes. Repayments of tax and payments of tax credits under the SME and RDEC incentives are subject to legislation enabling HMRC to offset the amount due against tax owed before paying you any remaining balance.

This is unless a tax payment has been formally deferred. For example, VAT payments were deferred during the COVID-19 pandemic (meaning the tax wasn’t due at the normal time). In circumstances like these, R&D tax credits are not set off against tax that would otherwise have been owed. 

Tax credits

If a company claims a payable R&D tax credit, HMRC will pay the amount claimed in respect of the credit unless:

  • The company has other outstanding debts to HMRC.

    For SME claims, the R&D legislation allows a payable credit claim to be offset against any other corporation tax, PAYE or NIC owed for the claim period.

    For RDEC payments, HMRC will offset any cash RDEC payment against any other tax liabilities. This would include any corporation tax, PAYE, NIC or VAT payments which are overdue.

    Any surplus R&D tax credit due after clearing any other HMRC debt can be paid.
  • An enquiry is opened into the company’s return for the accounting period for which the R&D tax relief is claimed.

    Here payment may be withheld until the enquiry is completed, although it is possible for HMRC to part-pay an R&D tax credit during an enquiry if appropriate.

If you are behind on your tax liabilities, HMRC may keep some of your tax credit to settle these arrears before paying you the balance.

The good news is that HMRC won’t keep your credit to offset an upcoming liability, offsets are only based on what you owe on the date they process the claim (which is likely to be a few weeks after you submit the claim to them).

Refunds of Corporation Tax

Sometimes your R&D tax relief or RDEC claim will result in Corporation Tax you have already paid is refunded. If you are due a refund of Corporation Tax, HMRC will first check whether you owe any other taxes before processing your refund. If you do, they will use all or part of the refund due to settling those other debts.

Time to pay arrangements

Time to pay (TTP) is an agreement entered into between a taxpayer and HMRC which delays enforcement proceedings for a given debt to a specified future date. TTP is akin to a payment plan with a creditor, but it does not stop the liability from being owed.

Where TTP arrangement is in place, HMRC will set any R&D tax credit due against the TTP liability, regardless of the timings you have previously agreed as part of the TTP process.

Negotiating with HMRC

ForrestBrown has tax experts, lawyers and former HMRC inspectors on staff to help resolve HMRC enquiries. This enquiry support service is available to all businesses, not just our clients.

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