What Impact Will Covid-19 Measures Have On My R&D Tax Claim?

To reduce the impact of COVID-19, the government released various financial schemes.

In this article, we’ll review each of the following to identify their potential impact on SMEs and R&D tax claims:

1. Furlough - Coronavirus Job Retention Scheme (CJRS)

2. Bounce Back Loan (BBL)

3. Corona Business Interruption Loan (CBILS)

4. Innovate UK Grant & Innovate UK Innovate Continuity Loans

5. Future Fund

6. VAT deferral

7. Time To Pay (TTP)

1. Coronavirus Job Retention Scheme (CJRS) [also known as the Furlough Scheme]

The CJRS was implemented on 20 April 2020 to help employers keep employees on the payroll throughout the pandemic.

The Coronavirus Job Retention Scheme ended on 30 September 2021.

R&D tax claim impact? Yes

Although R&D tax claims and the CJRS are completely separate, the furlough scheme is likely to have impacted your business, as you likely had fewer staff involved in R&D activities. 

With less staff working, they could not carry out R&D activities—as such, you cannot claim their salaries for R&D tax credits purposes. You can read more about the impact of furloughed staff on claims here.

2. Bounce Back Loans

From 4 May 2020, SMEs could borrow between £2,000 – £50,000 (a significantly smaller amount than the CBILs loan scheme). There were no fees or interest to pay in the first 12 months, and after which, the interest rate was only two and a half percent, per year.

The Bounce Back Loan scheme ended on 31 March 2021.

R&D tax claim impact? Maybe

Bounce Back Loans are classed as ‘notified state aid’ which means that any R&D projects either part or fully funded by the BBL scheme do not qualify for R&D tax credits. 

You can still apply for R&D tax credits under the RDEC scheme, which equates to 11p cashback for every £1 spent on qualifying expenditure.

You need to be very precise about how BBL money is utilised to avoid 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. 

3. Coronavirus Business Interruption Loans (CBIL)

CBILs provided financial support (up to £5 million) to SMEs across the UK that were negatively impacted by COVID-19. Although recipients remained fully liable for the debt, there was no requirement to pay any interest during the first 12 months. The government also acted as a partial guarantor against the outstanding balance.

The CBIL scheme ended on 31 March 2021.

R&D tax claim impact? Maybe

Essentially, a CBIL is notified state aid – similar to the Bounce Back Loan scheme.

This means you can still apply for R&D tax credits under the RDEC scheme, which equates to 11p cashback for every £1 spent on qualifying expenditure.

If you compartmentalise the way you spend your CBIL for a particular R&D project(s), then any projects not funded by the loan will still be able to claim R&D tax credits under the SME scheme (cashback 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.

4. 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, with the largest grant standing at £7 million.

R&D tax claim impact? Maybe

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

However, if your state aid is considered ‘de minimis,’ which means you’ve received less than £200,000 in the last 3 years, then you will be subject to a different ruling. This will be made very clear in the Innovate UK Grant Offer Letter. 

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

For example, if you receive a £20,000 Innovate UK grant on a £100,000 R&D project, and your grant is classified as ‘de minimis’, you can claim R&D tax relief on 11 percent of the £20,000 funded by the grant, and 33.35 percent R&D tax relief on the £80,000 remainder.

5. Future Fund

This scheme issued convertible loans between £125,000 and £5 million to innovative companies that were negatively impacted by COVID-19. This scheme primarily applied to businesses who had trouble finding equity investment and were unable to access other government loans, such as CBIL or BBL, due to being loss making or pre-revenue status.

The Future Fund scheme ended on 31 January 2021.

R&D tax claim impact? No

As these convertible loans were commercial, 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 any 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 they do not impact your R&D claim here.

6. VAT deferral

The government allowed for the payment of VAT liabilities from 20 March 2020 - 30 June 2020 to be deferred until 31 March 2021. Businesses were still required to file VAT returns—the deferral meaning that they could move the payment of the liability to a later date, should they wish.

The deferred VAT became due by 31 March 2021.

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.”

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

7. 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.

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. 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. 

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For more information or assistance regarding your R&D tax claims, our trusted team is always on hand. Get in touch with us today for an open and honest chat about your R&D claims.