We are expecting HMRC to challenge future claims for Research and Development tax credits on the basis of claims made under the various Covid-19 support schemes. This is because subsidies and grants will affect eligibility for R&D tax credit claims. RDP has reviewed the main COVID-19 government assistance programmes and commented on this below. The bottom line is that there are planning opportunities to maximise an R&D tax credit claim, so we urge you to contact us.
Coronavirus Business Interruption Loan Scheme (CBILS)
Coronavirus Business Interruption Loans (CBILS) are loans to businesses where the government pay the first 12 months of interest payments and any lender fees.
In terms of a Research and Development Tax Credit claims CBILS are classified notified state aid.
Where notified state aid has been used to fund an R&D tax credit project, that project cannot be claimed under the Government’s R&D tax credit scheme for small and medium businesses.
At the moment it is unclear how HMRC will determine if the CBILS funds are contributing to an R&D project. Our initial thoughts are that a project by project analysis will be required companies to judge how the CBILS funds have been used. The determination of this will need to be considered in line with the guidelines in regard to state-aid funding for R&D projects and it’s effect on the appropriate size scheme for claiming SME R&D tax relief or RDEC credits.
There is also the possibility for an SME to claim R&D tax credits under SME for certain projects not related to the CBILS funding, and claim RDEC for the projects related to the CBILS funding. To achieve this result, much deeper analysis of the financial arrangements needs to be completed.
Bounce Back Loans (BBLs)
Under this program small and medium-sized businesses affected by Coronavirus (COVID-19) can apply for loans of up to £50,000, which the government will guarantee 100%. In addition, no interest is payable for the first 12 months. This assistance qualifies as notified state aid and therefore the same comments apply as for the CBILS loans above.
Coronavirus Job Retention Scheme (furlough)
Under the furlough scheme companies are permitted to claim 80% of the salaries of “furloughed” employees (up to a cap). Under this scheme an employee cannot undertake any work for the business during the furlough period including providing services or generating revenue.
If an employee is not doing any work while furloughed then they cannot be contributing to an R&D project during their furlough period. This only applies to the furlough period but will need considering in any claim. Any time spent by the employee on eligible R&D work, before and after the furlough period, will qualify for R&D tax credits in the same way prior to COVID-19.
As this is directly attributable to R&D projects the furlough state aid should not affect claims in the same way as for the CBILS and BBLs.
If you have any questions at all on how COVID-19 government funding affects your eligibility for R&D tax credit claims, please do not hesitate to contact us.
For details of our R&D tax credit claim team and service please click on this text.