Tax Incentives Blog

The Employee Retention Credit, also referred to as ERC, is a refundable payroll tax credit that businesses can receive on qualified employee wages and certain employee benefits beginning March 13, 2020, through December 31, 2021. The program was first introduced by the Coronavirus Aid, Relief and Economic Security (CARES) Act. It was signed into law during March 2020 to assist businesses that were impacted by the COVID-19 pandemic and to encourage businesses to keep employees on their payroll. Since its inception, the program has gone through many revisions with three different acts. The first being the Consolidated Appropriations Act, 2021 (CAA), enacted in December 2020, the second is the American Rescue Plan Act (ARPA), enacted in March 2021, and the third is the Infrastructure Investment and Jobs Act (IIJA), enacted in November 2021. The last act accelerated the end of the program from the initial date of December 31, 2021, to September 30, 2021, for most businesses. However, for wages paid by a Recovery Startup Business, the expiration date remains December 31, 2021.

At the end of June 2022 the new Circular Bio-based Europe Joint Undertaking (CBE-JU) announced a €2 billion partnership between the European Union and the Bio-based Industries Consortium (BIC), funding projects with cash grants which advance the competitive circular bio-based industries in Europe.

Even in crisis, there is wrongdoing. This is an unfortunate truth in the world, and the COVID-19 pandemic is no exception. Since the beginning of the health crisis in 2020, the world has faced numerous negative impacts related to health, education, and the economy. Here in the United States, to minimize the impact to the economy, the Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, this new law sought to provide emergency financial assistance to help millions of impacted small businesses and American families get back on their feet, as well as stimulate the economy. Although created with good intentions, these relief packages and economic aid tools brought about individuals and businesses who took advantage, initiating pandemic fraud activity.

The total number of Research and Development (R&D) tax claims increased by 10.54% from 2021-22 on 2020-21 with abuse still rife, Her Majesty's Revenue and Custom (HMRC) priority to tackle dubious claims have seen delays to processing times.

The time to reverse the changes made by the 2017 Tax Cuts and Jobs Act (TCJA) is quickly running out. These changes force companies to begin amortizing research and development expenses over a period of 5 years rather than deduct them entirely in the year in which it was claimed. A measure to help offset the revenue lost from cutting the corporate tax rate from 35% to 21%, the change to I.R.C. section 174 removes the option of a current year deduction in full.

A new court opinion issued by the U.S. Tax Court emphasizes the importance of contract review for the analysis and substantiation of an R&D tax credit claim. The opinion alludes to additional requirements to demonstrate a taxpayer's economic risk when conducting research. Moreover, the court points to precedence to emphasize that terms and conditions within any contract agreement are most important, and no implications or assumptions should be needed or considered to substantiate a credit claim.

This week farmers, growers, or foresters in England will be able to apply for a portion of £8 million in cash grants for project costs that aim to drive the development and demonstration of solutions that have the potential to substantially improve overall productivity, profitability, and environmental sustainability and help the sector mitigate greenhouse gas emissions and adapt to the effects of climate change.

March 27^th, 2022, marks the second anniversary of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), the $2.2 trillion economic stimulus bill that authorized the Employee Retention Credit (“ERC”). The ERC is a refundable payroll tax credit based on wages paid to employees at organizations that either (1) have been fully or partially shut down due to a government order OR (2) had gross receipts decline a certain percentage relative to gross receipts in the same calendar quarter of 2019.

There’s still hope that the Tax Cuts and Jobs Act’s (TCJA) changes to Section 174, requiring amortization for research and experimental (R&E) expenses, could be delayed or repealed. Under the TCJA, as of January 1, 2022, domestic R&E expenditures are required to be amortized over 5 years and foreign R&E expenditures over 15 years. Prior to January 1, 2022 taxpayers had been able to write-off 100% of R&E costs.

The new definition of R&E expenditures under Section 174 also includes software development costs. Previously, under Revenue Procedure 2000-50, taxpayers had the option to immediately expense or amortize software development costs over a period of 36 or 60 months. With the TCJA change, these options are no longer available. Domestic software development costs must be amortized over 5 years and foreign software development must be amortized over 15 years.

As a continuing part of its initiative to further international collaborative research, Innovate UK has announced that it will invest up to £2 million in innovation projects in partnership with Korea Institute for Advancement of Technology (KIAT). The aim is to fund business-led industrial research that leads to a new product, industrial process or service, be innovative, involve a technological risk, and have high market potential in the participating countries.