14. Income taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. We evaluated the provisions of the CARES Act and do not anticipate the associated impacts, if any, will have a material effect on our financial position.

During the years ended March 31, 2021 and 2020, the Company recorded no income tax benefits for the net losses incurred due to the uncertainty of the realization of such losses. The Company’s net loss before income taxes were generated in the United States and the United Kingdom.

Net loss before income taxes for the years ended March 31, 2021 and 2020 were as follows:

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended March 31, 2021 and 2020 is as follows:


	Year Ended March 31,
	2021		2020
U.S. Federal statutory income tax rate	(21.0)	%	(21.0)	%
State taxes, net of federal benefit	(2.4)	%	(1.6)	%
Research and development credits	(0.8)	%	0	%
Research and development expenses	1.9	%	2.2	%
Return to provision	0	%	1.9	%
Stock compensation	(3.9)	%	0	%
Foreign tax rate differential	0.0	%	2.8	%
Change in valuation allowance	25.9	%	16.0	%
Other	0.3	%	(0.3)	%
	0.0	%	0.00	%

Components of the Company’s deferred tax assets as of March 31, 2021 and 2020 were as follows:


	Year Ended March 31,
	2021		2020
Deferred tax assets
Federal net operating loss carryforwards		7,083		2,450
Foreign net operating loss carryforwards		22,195		9,092
State net operating loss carryforwards		2,358		1,054
Research & development credits		787		—
Property, plant and equipment		5,068		5,499
Capitalized start-up costs		1,597		1,748
Stock compensation		4,838		2,526
Accrued expense		739		341
Lease liability		8,462		8,705
Total deferred tax assets		53,127		31,415
Deferred tax liabilities
Right of Use Asset		(13,090)		(13,998)
Other		(9)		(88)
Total deferred tax liabilities		(13,099)		(14,086)
Valuation Allowance		(40,028)		(17,329)
Net deferred tax assets		—		—

As of March 31, 2021, the Company had federal and foreign net operating loss carryforwards of approximately $33,731 and $116,815, respectively, which can be carried forward indefinitely. As of March 31, 2021, the Company had state net operating loss carryforwards of $37,311, which will begin to expire in 2039.

As of March 31, 2021, the Company had federal and state research and development carryforwards of approximately $687 and $126, respectively, which will begin to expire in 2041 and 2036, respectively.

Utilization of the U.S. federal and state net operating loss carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax liabilities, respectively. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation, due to the significant cost and complexity associated with such a study. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

Changes in the valuation allowance for deferred tax assets during the years ended March 31, 2021 and 2020 related primarily to the increase in net operating loss carryforwards were as follows:


	Year Ended March 31,
	2021		2020
Valuation allowance as of beginning of year	$	17,329	$	9,396
Increases recorded to income tax provision		22,624	$	8,047
Increases recorded to income tax provision for equity	$	76	$	—
Decreases recorded to income tax provision for equity	$	—	$	(114)
Valuation allowance as of end of year		40,028	$	17,329

As of March 31, 2021 and 2020, the Company had not recorded any amounts for unrecognized tax benefits. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of March 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s consolidated statements of operations and comprehensive loss.

The Company files income tax returns in the United States, Massachusetts and the United Kingdom as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state and foreign jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax examination in the U.S. under statute from 2018 to the present and in the United Kingdom from 2017 to the present.

As of March 31, 2021 and 2020, income taxes on undistributed earnings of the Company’s subsidiary have not been provided for as the Company planned to indefinitely reinvest these amounts, had the ability to do so, and the cumulative undistributed foreign earnings were in an overall deficit.

Year Ended March 31,

United States

Foreign (United Kingdom)