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R&D Tax Claims and COVID-19: New limitations on claims

Paul Woodward

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Paul Woodward

A number of Government support measures introduced for businesses during the COVID-19 pandemic have now been classed as Notifiable State Aid (NSA) under the European Commission’s Temporary Framework.

This means that for companies claiming this support, it may not be possible to claim relief under the SME R&D scheme or claims under that scheme may be limited.

Support measures confirmed as Notifiable State Aid:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
  • Bounce Back Loan Scheme (BBLS)
  • Retail, Hospitality & Leisure Grant Fund
  • Small Business Grant Fund

The receipt of such aid may therefore make an R&D project wholly ineligible for the SME scheme if the loan or grant relates directly to that project.

Sums received for example from the BBLS or Small Business Grant Fund may however be classed as de-minimis state aid, which means only the subsidised amount used in the R&D project will not be claimable under the SME scheme, but could instead be eligible under the Research and Development Expenditure Credit (RDEC) scheme.

Paul Woodward comments, “Currently, it appears that, if the government support now classified as NSA (for example CBILS) was used directly on the R&D project, it will not be possible to claim SME relief. However, if it was intended more generally to support the company, this should not affect the claim.”

“It will therefore depend on how the government support was used and will need to be correctly reported to substantiate your claim. We will be monitoring the application of this rule so that we can advise clients in this area.”

An example

ABC Limited secured CBILS funding (not classed as de-minimis) to be used to buy equipment and pay staff on a software development project.

The result is that it will not be possible for ABC Limited to make a claim under the SME R&D scheme for the specific project. However, a claim may be possible under the RDEC scheme, albeit the overall level of benefit under this scheme will be significantly less than under the SME R&D scheme.

Government schemes not considered state aid

The following government support measures will not affect R&D tax claims as they are not considered Notifiable State Aid:

  • Coronavirus Job Retention Scheme (it should however be noted that the time of furloughed employees cannot be include in a claim, see section below.)
  • Business rates relief
  • Payment deferrals (such as VAT or Time to Pay arrangements)

R&D Tax Claim and furloughing

If an employee is furloughed, they cannot undertake any work for the business during the furlough period. This includes providing services or generating revenue. The government has confirmed that, as they will not be carrying out any work, their time therefore cannot be included in a claim as their activities will not be directly and actively engaged in R&D activities.

Making an R&D tax claim during COVID-19

Despite these limitations, R&D tax claims continue to be an attractive relief for those businesses investing in eligible research and development. In more challenging times, this cash injection may be vital to your business, but it is important that claims are made correctly, or this can delay or restrict your claim.

If you are restricted in your claim, it may also be worth reviewing whether to claim under the SME R&D scheme or RDEC or both, and the potential claim values under each.

R&D Tax Claim Service

If you would like to discuss our R&D Tax Claim service and how our experienced team can assist your claim, please contact us.

Alternatively, you can find out more about our R&D Tax Claims Service here.

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This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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