During the COVID-19 pandemic, the government has initiated a number of schemes to help businesses. They do not stop a company being able to make an R&D tax credit claim, but they may impact the scheme under which the claim is made.
To make a claim for R&D tax credits the business must be a going concern and cannot rely solely on the repayment to stay solvent. The measures introduced by the government can help with cash flow and ensuring the company remains a going concern.
In this blog we have summarised the main government assistance programmes and how they impact on R&D claims.
Coronavirus Job Retention Scheme
Under this scheme staff can be furloughed and the company can claim back 80% of their salaries (up to a cap). When staff are furloughed they are not allowed to complete any work for the company. Therefore, there will be no qualifying costs for these staff during that period. Once the staff return to work, their salaries are no longer funded by the scheme and all qualifying costs are claimable.
Coronavirus Business Interruption Loan Scheme (CBILS)
Under this scheme SMEs receive loans and the government pays the first 12 months of interest and any fees. These loans are notified state aid. As R&D is completed on a project by project basis, if any of these costs are used to fund an R&D project, the costs will not be claimable under the, more favourable, SME scheme. Instead costs are claimed under the RDEC scheme, where there is a 13% credit.
Analysis of your expenditure for each project would be required to see if CBILS amounts are subsidising R&D. It may be the case that some projects are not funded by CBILS amounts meaning that an SME claim can be made while other projects require an RDEC claim. Thorough records would be required which can substantiate this split.
Bounce Back Loans
Small and medium sized businesses affected by COVID-19 can apply for loans of up to £50,000, guaranteed by the government. This assistance is notified state aid and project costs are required to be claimed under the RDEC scheme. This will be treated in the same way as CBILS.
British Business Bank Future Fund
This is a programme where the government matches private investment in an SME by way of a convertible loan. This loan is commercial and will not have any impact on R&D claims.
Tax deferral and time to pay arrangements
The government has agreed that certain tax payments can be deferred until March 2021 and many companies have made Time to Pay arrangements with HMRC. These do not impact a company’s ability to make an R&D tax credit claim but may impact the receipt of the repayment.
Under the R&D legislation RDEC must be offset against any liability owed to HMRC, and HMRC is not planning a revision to the legislation, whereas there is no such requirement for SME claims and HMRC will consider the circumstances for each case.
Where the due date of the payment has been deferred, such as with the VAT deferral, the R&D tax credit will not be offset until the revised due date.
Where a Time to Pay arrangement has been made this does not change the due date of the tax and so HMRC will offset any R&D repayment against these taxes.
For any questions relating to R&D please contact Laura Hankey on 01844 261155