R&D tax credits can be a valuable support mechanism for many SME’s, providing financial support to companies who strive to achieve better ways of working through innovation and development.
However, there are also other forms of financial relief provided by the Government, including many new initiatives in 2020 as a direct result of the Coronavirus pandemic.
The UK Government has spent billions on relief helping businesses get through the pandemic by the means of grants and loans such as Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loans (BBLs) and Coronavirus Job Retention Scheme (CJRS).
With many of the government relief options falling under either “State Aid” or “De Minimis Aid” status, the big question for many businesses claiming R&D tax credits is – Can I still claim R&D tax credits if I’ve received COVID-19 relief?
The answer is complex and depends on a number of factors, so we’ve broken it down into some of the common areas of COVID relief.
Coronavirus business Interruption Loan Scheme (CBILS)
CBILS is a Government funding scheme set-up to help SME’s during COVID-19 to ensure that these businesses did not go into liquidation. CBILS falls under the category of State Aid.
Usually where Notified State Aid has not been allocated to fund a particular project or expense, HMRC assume it was divided out to all areas of expenditure and projects equally. This therefore makes the R&D projects ineligible for the SME R&D tax relief. As a result of this, HMRC have issued the following statement:
“The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts.”
Taking this statement into account, it would appear that HMRC is taking the view that if a business has claimed CBILS for general business support, it should not necessarily mean the business is now ineligible to claim R&D relief under the SME scheme. However,
if the CBILS application specifically relates to an R&D project or is used to fund an R&D project, it will disqualify the company from claiming R&D under the SME scheme.
Bounce Back Loans (BBLs)
Unlike CBILS, the Bounce Back Loans falls under De Minimis Aid. Awarding authorities should tell companies when they are receiving De Minimis Aid; the company in receipt of De Minimis Aid must keep records for 10 years, detailing the total amount of aid received and what they used the de minimis aid for.
A company cannot claim R&D under the SME scheme for costs within a project that are funded by De Minimis Aid. However, a company can claim SME relief or payable credit for costs within the project not funded by De Minimis Aid.
It is also worth noting that even if you are not eligible to make an R&D claim under the SME scheme, you may still qualify to make a claim under the RDEC (large company) scheme.
Coronavirus Job Retention Scheme (CJRS)
In short, if you furloughed employees and claimed the Coronavirus Job Retention Scheme, the main criteria for CJRS was that furloughed employees cannot carry out work on the company’s behalf during the furlough period. As a result, the employee costs for the furloughed period cannot be considered eligible, as they were not contributing to the R&D project.
Summary
If you are a SME claiming R&D Tax Credits and have received government support, you are best discussing the potential implications on your R&D claim with an expert.
If you would like further information on how CBILS and Bounce Back Loans could affect your R&D claim, then please contact us using our details below.
(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk
