The Inland Revenue is investigating IT project services provider BIW Technologies over tax credits it received on research and development.

Companies can offset money spent on R&D investment against their tax bill. Loss-making firms can either store up their entitlement to offset until they make a profit, or apply to the Inland Revenue for a cash advance equivalent to the savings on their future tax bill.

BIW received these tax credits as cash, but the Inland Revenue is now conducting an inquiry into whether BIW met the rules of the scheme.

BIW’s auditor PKF warned there was “fundamental uncertainty” over its future if BIW had to repay £433,492 in tax credits plus interest. It has £284,000 in its account.

A statement from PKF said: “The company does not currently have sufficient cash resources in the event that it would be required to repay the tax credits received from the Inland Revenue.”

BIW may also not receive £58,598 in tax credits it applied for in its 2003 accounts.

Colin Smith, chief executive of BIW, said he believed the company’s claim for the tax credits was sound.

“BIW does not have sufficient cash resources if it were required to repay the tax credits to the Inland Revenue”

Statement by PKF, auditor of BIW

On the other hand, if BIW did have to repay the tax credits, he said it would be able to continue trading.

He said: “There are no issues with the company as a going concern. If the Inland Revenue demanded the money tomorrow we couldn’t pay it. I would have to go back to our shareholders and ask them to put their money on the table – we wouldn’t let the company go bust for the sake of a few hundred thousand pounds.”

Smith added: “We made a claim we believe is wholly valid on the basis of tax advice we received. We are going through the process of answering their questions.”

He said BIW had withdrawn £11,000 of its claim for sundry items: “That is what we believe our exposure is.”