To reduce the impact that COVID-19 has had, the government has released various messages to SMEs around the country. This is great news, and most of us have taken advantage of them in one way or another. Now, though, the question is how do these COVID-19 measures affect my R&D tax claim?

The answer is, it depends!

We will go through the following government schemes that have been introduced since the beginning of the pandemic:

The answer is, it depends!

We will go through the following government schemes that have been introduced since the beginning of the pandemic:

  • 1. Furlough - The Coronavirus Job Retention Scheme (CJRS)
  • 2. Job Support Scheme (JSS)
  • 3. Bounce Back Loan (BBL)
  • 4. Corona Business Interruption Loan (CBILS)
  • 5. Innovate UK Grant & Innovate UK Innovate Continuity Loans
  • 6. Future Fund
  • 7. VAT Deferral
  • 8. Time To Pay (TTP)

1. Coronavirus Job Retention Scheme (CJRS) - More commonly known as the Furlough Scheme

The CJRS was implemented on April 20th, 2020 to help employers keep employees on payroll throughout the challenging times of COVID-19.

Any R&D Tax Claim Impact? Yes

R&D tax claims and the CJRS are completely separate, so there will be no impact. Keep in mind, though, that the furlough scheme will likely impact your business in other ways, as you will likely have fewer staff involved in R&D activities. With less staff working, they cannot carry out R&D activities, and as such you cannot claim their salaries (whether the government has reimbursed you or not). Just something to consider. So any furloughed staff cannot work on R&D activities, and as such you can’t claim that portion of the salaries for R&D Tax Credits purposes. You can read more about the impact of furloughed staff on claims here.

2. Job Support Scheme (JSS)

Similar to the CJRS, this provides support to employers in keeping employees on payroll, even when there is less work. This scheme starts November 1st 2020, and the key difference is employees are allowed to work, but part time. Any hours not worked (during the usual, contracted work week), will be paid at the rate of up to two thirds of their usual salary. The government will pay the rest.

Any R&D Tax Claim Impact? Yes

The good news is you can claim salaries for the proportion the company has paid to keep the staff engaged in R&D activities. The element covered by the Government whilst the staff are ‘tools down’ wouldn’t qualify for R&D. So be mindful of exactly how much has been claimed under this scheme, so you can evaluate exactly how much to claim when preparing your R&D tax credits claim.

3. Bounce Back Loans

This is for SME’s to borrow between £2,000 – £50,000 which started from 4th May 2020, so significantly smaller amounts than the CBILS loan scheme. There are no fees or interest to pay in the first 12 months, and after which, the interest rate is only 2.5% per year.

Any R&D Tax Claim Impact? Maybe

The Bounce Back Loans are classed as ‘notified state aid’ which means that any R&D projects part (or all) funded by the BBL scheme do qualify for R&D tax credits, but only under the less generous RDEC scheme, in effect giving you back up to 11p for every £1 spent on R&D instead of 33p for every £1 spent on R&D.

You need to be very careful how the BBL money is utilised to avoid tainting your R&D claim and reducing the value of your R&D tax credits claims. 

Simply put, the best way to use the BBL is to try and use all the money to fund non-R&D related business expenses. 

If you have multiple R&D projects, many of which are not funded by the BBL then you will be able to claim R&D Tax credits under the SME scheme as normal  

4. Coronavirus Business Interruption Loans (CBILS)

The CBILS provides financial support (up to £5 million) to SME’s across the UK that are negatively impacted by Coronavirus. You remain fully liable for the debt, but you do not have to pay any interest during the first 12 months, as the government will pay for it. The Government also acts as a partial guarantee against the outstanding balance.

Any R&D Tax Claim Impact? Maybe

Here’s where things get a little bit more technical. Essentially, a CBIL is notified state aid – simiar to the Bounce Back Loan scheme.

Not to worry! All hope is not completely lost, you can still apply for R&D Tax Credits under the less generous RDEC scheme. What that means is:  You can claim up to 11p on every £1 you spend on qualifying expenditure as cash back. 

Better still, if you compartmentalise the way you spend your CBILS for a particular R&D project(s), then those not funded by the CBILS loans will still be able to claim R&D tax credits under the more generous SME scheme, attracting cash back of up to 33.35p for every £1 spent on R&D. You can read more about how a CBIL could affect your R&D Tax Claim here.

5. Innovate UK funding

This is funding specifically for creative exploration and project development. Innovate UK will provide a full grant for qualified expenses for each project. Details vary on a case by case basis, and the largest grant stands at £7 million.

Any R&D Tax Claim Impact? Maybe

Innovate UK is generally considered notified state aid. This means you cannot claim R&D tax credits under the SME scheme (in most cases).

There is one catch to this state aid rule though, and that is, if your state aid is considered “de minimis” which means you’ve received less than £200,000 in the last 3 years, then a different kind of rule applies. This will be made very clear in the Innovate UK Grant Offer Letter. 

For the (up to) £200,000 in state aid you received, you will have to apply the RDEC rules, which means claiming only 11p for every £1 spent on R&D. 

A quick example: If you receive a £20,000 Innovate UK grant on a £100,000 R&D project, and your grant is classified as de minimus (less than €200,000 over the past 3 years), you can claim R&D relief of 11% on the £20,000 funded by the grant, and 33.35% R&D relief on the £80,000 remainder that was self-funded.

6. Future Fund

This is a scheme issuing convertible loans between £125,000 and £5 million to innovative companies that are negatively impacted due to Coronavirus. This primarily applies to companies, who now have had trouble finding equity investment but are unable to access other government loans, such as the CBILS or BBL loans due to being loss making or pre-revenue businesses.

Any R&D Tax Claim Impact? No

These convertible loans are commercial, so they are not considered state aid. You can be in receipt of monies from the Future Fund and claim SME R&D tax relief simultaneously. This means, spending the Future Fund money on R&D projects would still qualify for R&D tax credits under the SME scheme. You can read more about future funds and why it does not impact your R&D claim here.

7. VAT Deferral

The government has allowed for the payment of VAT liabilities from 20 March2020 to J30 June2020, to be deferred until 31 March 2021. Please keep in mind, you must still file your VAT returns! It only means that you can defer the payment of the liability until a later date if you wish.

Any R&D Tax Claim Impact? No

“Where Ministers have agreed that tax can be deferred for a specific regime to support businesses in the COVID-19 period, i.e. the self assessment payment on account and VAT quarterly payment deferrals, RDEC or [SME} payable tax credit will not be set against any of those amounts before the revise due date.”

In short this means your R&D claim wont be affected, and when HMRC issue your R&D tax credits cheque, they won’t offset the deferred VAT payments before releasing the funds to you.

8. Time To Pay (TTP)

This is an arrangement made with HMRC which allows you to pay your debt (for example, corporation tax or PAYE liabilities) in monthly instalments (usually over 12 months) instead of the required full payment at the respective due dates. This is negotiated on a case by case basis, so details may vary.

Any R&D Tax Claim Impact? Yes

If your company owes the government tax but also expects to receive a refund from HMRC (such as an R&D tax claim refund), they will deduct one from the other. So, if you have a  time to pay arrangement with HMRC, you will essentially “receive” your R&D tax credits after having had any monies owed to HMRC deducted first. 

So there you have it, R&D tax has lots of little rules, but we are here to help with that if you get stuck.

Contact us if you need more info or assistance regarding your R&D tax claim amongst all the COVID information. Our team and software is always up to date with the latest in the R&D tax claims world, so we will be able to answer any questions you may have and assist you with your next R&D tax claim.

It is good to note, HMRC have been doing a really great job at processing claims  so your claim will most likely be turned around within 28 days.

Written By Shoayb Patel, Founder of RDvault

"My vision at RDVault is to become the world’s leading software company helping innovative companies effortlessly retain all of their R&D tax incentive claims."

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