How to better satisfy your cash needs in times of crisis

The global impact of war, geopolitical strife and even a pandemic can cause businesses to re-evaluate their priorities. During a crisis, businesses need to continually evaluate the safety of their employees and consumers, day-to-day operations, investor responsibilities and governmental obligations. The key to meeting each of these challenges is the same: sufficient cash flow. When times are tough, many businesses begin to conserve resources, especially cash; however, injecting new funds into the business may be equally important.

Governments around the world introduced a variety of tax and financial measures to help businesses stay afloat during the COVID-19 pandemic. While the specifics of each mechanism vary, common measures that are designed to either give businesses cash or allow them to retain more cash include:

• Employee retention schemes
• Tax payment deferrals
• Loans and guarantees
• Accelerated depreciation
• Improved loss utilization rules, such as carrybacks or carryforwards)
• Innovative measures that are designed to allow businesses to convert tax assets into cash payments
• Accelerated refunds

In addition to stimulus measures, there are also many existing incentives that are now more important than ever to help secure cash for your business. Research and development (R&D) incentives, as well as program and sustainability grants, are common around the world.  

Stimulate growth with tax credits and grants

R&D tax credits are one of the most popular methods utilized by governments to attract economic activity. Tax credits are designed to promote the development of new or improved services or products and are typically awarded for money already spent by the taxpayer on eligible expenditures.

The annual EY Worldwide R&D Incentives Reference Guide offers an overview of the various credits available. To receive cash via tax refund or conserve cash via reduced future payments, businesses may want to consider accelerating the filing of their R&D claims; in many cases, it is possible to file immediately.

Governments worldwide also offer grants, or cash payments that do not require repayment, to companies for specific initiatives that align with government policy goals, such as new sustainability innovations, or for capital-based projects where the aim is to create jobs in underserved areas.

Grants are often competitive and always discretionary, and a successful application is not guaranteed. Businesses can benefit from dedicated assistance and support to identify such grants, triumph in the application process, manage the ensuing project effectively and satisfy funding compliance requirements.

Cash tax planning

Many cash tax planning strategies focus on how to best utilize legislative initiatives, while others look to traditional tax planning opportunities to increase liquidity and otherwise reduce or defer tax liabilities. Businesses can increase their available cash by applying these methods to prior-year tax returns to receive refunds or by applying them in current periods to reduce estimated or future tax payments.

The procedural mechanism to apply these methods, whether a special claim form, an accounting method change request or even an amendment to a tax return, varies not only by jurisdiction, but, more importantly, by what is most advantageous to the taxpayer. Extensive modeling that evaluates every position and procedural opportunity is therefore key to achieving the best result.

Top cash tax planning methods for all taxpayers to consider include:

• Deferring income: Identify items that are properly excludable from taxable income, defer advance payments and limit income acceleration by analyzing income recognition methods.
• Accelerating deductions: Review the timing of expense deductions, including prepaid expenses or prepaid services or property, and evaluate recovery periods to accelerate depreciation or amortization.
• Fully utilizing losses: Recognize built-in losses on depressed asset values, evaluate bad debts that can be written off and review transfer pricing policies to ensure equitable sharing of current losses within the supply chain.

In addition to income taxes, consider your value-added tax and goods and services tax positions and promptly reclaim any overpayments. Many governments have accelerated or simplified this process.