R&D relief – going concern rules and intra group transfers

The CIRD manual says (at CIRD191000 – Intra-group trade transfers): a company can still be a going concern if the only reason its latest published accounts are not prepared on a going concern basis is that it has transferred its trade to another company that is a member of the same group.

However, HMRC have confirmed that they agree that the detail of the legislation in CTA 2009 (‘old’ rules for RDEC and SME scheme: sub-sections 104T(4A) and 104T(4B), sub-sections 1046(2D) and 1046(2E) and sub-sections 1057(4D) and 1057(4E) and for the new merged scheme: section 1112G (5)) means that the relief may not be available depending on the date of the intra-group transfer and its treatment in the company’s accounts, specifically if the transfer has to be taken into account as a post-balance sheet event. 

Consider these basic facts by way of an example:

• CoA and CoB are part of the same worldwide group and are both UK tax resident and UK incorporated
• Both have normal 12-month periods of account ending on 31 December 2024
• CoA is a software development business and habitually makes R&D claims
• On 6 January 2025, the trade of CoA was transferred to CoB
• We understand that CoA will produce accounts to 31 December 2024, but these will not be prepared on a going concern basis since post-balance sheet the trade has been transferred to another entity. 

The conclusion is that if the accounts for 31 December 2024 are drawn up and published before the 2024 R&D claim is submitted, CoA would be precluded from making an R&D claim because then the latest published accounts would not be on a going concern basis, but also do not include a relevant group transfer. 

It appears that the problem arises because the transfer has occurred after the end of the accounting period, but before the 2024 accounts have been published. We understand that under GAAP the post-balance sheet event (the transfer) must be taken into account in assessing going concern status for this set of accounts. But the transfer of the trade has not taken place within the accounting period, so the relieving provision for R&D relief in the legislation does not apply. 

HMRC have confirmed that this would be how the legislation applies to these facts. 

The effect of S1112G(5)(b) CTA09 is that, where a company’s accounts are prepared on the basis that it is not a going concern this is only disapplied for the period in which the transfer of the trade and R&D to another member of the group takes place. 

Subsections 104T(4A) & (4B), subsections 1046(2D) & (2E) and subsections 1057(4D) & (4E) have the same effect with respect of accounting periods beginning on/after 1/4/2023 and before 1/4/2024. 

S1112G(5)(b) refers to “the company’s accounts for the period of account in which the transfer took place”, while s1046(2E)(a) refers to “a transfer within the accounting period to which the latest published accounts relate…”, but slightly different wording does not alter the meaning. In both cases it is referring to the latest published accounts being those in which (a) the transfer took place and (b) from which the accounting period in question arises.

We understand that the scenario that HMRC had in mind when the legislation was drafted was one where the transfer occurred in the relevant accounting period. The issue being addressed was companies that were prevented from making an R&D claim for the year in which the trade was transferred because the accounts had to be prepared on the basis that the company was not a going concern. HMRC have said that, although there is no policy reason why circumstances such as those outlined above should not be in the rules, legislative change is not expected in the near future to bring them in scope. However, HMRC is intending to update the CIRD manuals to reflect this point in the coming weeks.