What Impact Does Furloughed Staff Have on My R&D Tax Credits Claims?

Having staff on furlough will likely impact your R&D tax credits claim.

On 1st March 2020, the government released the Coronavirus Job Retention Scheme, or as it’s more commonly known—furlough. Over 1.2 million employers took advantage of this, with over 9.2 million employees ‘furloughed’.

The scheme stated that the government would pay 80 percent of an employee’s salary (up to £2,500 per month), with their employer then having the option to top-up the remaining 20 percent.

The Coronavirus Job Retention Scheme ended on 30 September 2021.

How does this impact R&D tax credit claims? 

As a general rule, furlough has no direct impact on your next R&D tax credit claim. The scheme does not interfere with any other government support, meaning you can file your SME R&D tax relief claim as normal.

Having said that, there are several things to consider.

Furloughed staff means there’s less R&D tax relief to claim

One of the key points of the scheme was that furloughed employees may not conduct any work during the period. 

This means that they could not be directly or actively engaged in relevant R&D projects.

Therefore, you cannot recover these wages in your R&D tax credits claim, even if you topped them up.

Furloughed staff may impact your R&D projects

Having staff on furlough may have significantly impacted, or stopped entirely, your R&D project(s). With less people working, there’s less eligible R&D tax credits to claim. 

Holiday and sick pay is an exception

You can claim R&D tax relief on any holiday or sick day that your staff have taken, even if they were on furlough during this period. 

This is because the government sees holiday and sick days as mandatory parts of an employee’s contract, and this rule applies whether or not they are on furlough.

Please keep in mind that if you claim employee sick pay and holiday costs, this must be done under the RDEC rules, rather than SME R&D tax relief. This means you will only receive around 11p for every £1 spent on holiday and/ot sick pay.

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