Businesses across the UK have benefitted from the financial support provided through a variety of government funding schemes, implemented to offset the immediate financial impact of the COVID-19 pandemic.
The Coronavirus Job Retention Scheme (CJRS) was implemented to support employers to avoid staff redundancies, and the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan schemes were created to provide loans to businesses experiencing cash flow issues as a result of the pandemic.
Whilst the support received from these schemes has been, and will continue to be essential for many businesses, receiving funding under these schemes could have an impact on how businesses are able to claim R&D tax credits.
Here we consider the potential impact of these schemes on R&D claims.
Impacts of CRJS on R&D claims
The CRJS scheme was introduced in March to provide employers with support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. Companies were able to ‘furlough’ staff, placing them on a leave of absence and claim up to 80% of their monthly wages as a grant payment.
A large part of any businesses’ R&D tax credit claim is their PAYE costs for staff performing research and development activities, meaning furloughing employees could affect your claim.
The primary impact of furloughed workers on your R&D tax claim, is that they need to be excluded for the time they spent on leave, as during that time, they were not performing any R&D activities on behalf of the company.
As part of excluding furloughed time, you will need to keep clear records of which staff members were affected and for how long. As a claimant company, it is your responsibility to provide that information as part of your claim, whether you are building a claim alone, with your accountant or an R&D Tax Specialist.
These records are especially important as your payroll reports will only show the amount of net pay, not whether employees were furloughed at the time of being paid. The timescale spent on leave will then need to be proportioned accordingly.
Unfortunately, the exclusion of any time employees spent on CJRS supported leave will result in claims being potentially lower, however the scheme has had an overall positive impact – giving businesses the opportunity to maintain employment levels where they may have otherwise had to consider making redundancies.
Announced on 24th September, the 6-month Job Support Scheme will also be introduced in November, and will support employees working a minimum of 33% of their usual hours. For every hour not worked, the employer and the government will each pay one third of the employee’s usual pay. The impact of this scheme on R&D claims is expected to be similar to the CJRS.
Impact of Coronavirus Business Interruption Loan Scheme (CBILS) & Bounce Back Loan Scheme on R&D claims
The CBILS and Bounce Back loan schemes were both introduced to provide loan facilities, helping businesses to access the emergency finance they needed during the COVID-19 outbreak.
These schemes have been confirmed by HMRC as notified state aid, meaning receiving funds under these schemes may also conflict with SME R&D claims if not carefully planned.
You will be unable to claim any element of the CBILS loan if it is specifically used on qualifying development work for R&D, meaning you will need to deduct the total amount of the CBILS loan money you put towards your qualifying expenditure from your claim.
This is a complicated area, and we would advise you to get in touch with our dedicated experts who can review how your claim may be impacted in the context of your specific situation.
How will we be able to help
Gary Devonshire, Tax Director and specialist in R&D tax claims added:
“This has been a difficult time for most businesses and especially those that invest in R&D. The government support packages have provided lifelines for many businesses and while they may affect R&D claims, they should not eradicate them. I therefore actively encourage innovative companies to get in touch to ascertain if additional cash can be generated through making an R&D claim. The government measures add complexity to making claims and professional advice with making claims is more valuable than ever”.
Sam Stephens, Director at TBAT commented:
“CJRS has been a great source of financial support for many businesses, securing income for hundreds of thousands of employees during a difficult and worrying time for us all. It was inevitable that this scheme would have an effect on R&D Tax claim values due to R&D activities not taking place during a period of ‘furlough’. As R&D Tax Specialists, it’s our job to help companies that have used the scheme and claiming R&D Tax, to work out their claim value correctly for the 2020 Financial Year.”
Through the Smith Cooper and TBAT Innovation Partnership, you are guaranteed to get the best advice and support from both accountants and R&D Tax Specialists, to ensure your R&D tax claim is calculated correctly.
Our collaborative approach will account for all your eligible R&D and exclude the right amount for the time your employees spent furloughed, resulting in a robust, evidenced and maximised R&D Tax claim.
If you think your company may be undertaking R&D, our R&D online portal, allows you to submit key data to work out whether you may be eligible to submit a claim, making the whole process quicker, easier and much more accessible.
Alternatively, if you have any further questions about how COVID-19 Government support measures may interact with and impact your R&D claim, please get in touch with a member of our dedicated tax team.
*(Updated to reflect HMRC and Government guidance on 28th August 2020)