Impact of Covid-19 Support Measures on R&D Tax Relief Claims

Coronavirus Job Retention Scheme (CJRS)

Many companies have received furlough payments to support staff retention during the crisis.  Under the CJRS, one of the key conditions is that the employee has ceased all work in relation to their employment. HMRC consider that those employees cannot be regarded as being directly or actively engaged in relevant research and development, resulting in these costs not being claimable. An exception to the rule is if there has been any annual leave or sickness taken when the staff member was furloughed. As the payments have been through the CJRS, these costs cannot be claimed under the SME scheme but can be claimed under the large company R&D Expenditure Credit (RDEC) scheme.

Coronavirus Business Interruption Loans (CBILs)

The Government’s CBILS scheme provides financial support for businesses affected by COVID-19.  Managed by the British Business Bank on behalf of the Government, the CBILS scheme gives businesses 12 months’ interest-free finance via a range of business loans, asset finance, invoice finance and overdrafts on loans of up to £5m.  The CBIL is a notified state aid and as companies cannot claim two forms of state aid for a project, this funding could impact SME R&D tax relief claims. If the CBIL is for ‘general working capital’ and specifically not to cover R&D, HMRC have indicated that SME R&D claims may still be possible. The recipient company will have to prove it has not spent the CBIL on, for example, R&D salaries and also show that it had sufficient other funding to cover the R&D project's costs. A CBIL for a completely unspecified purpose would prevent a company from making any SME R&D claim. RDEC claims are unaffected.

For more information on the key features of CBILS and the eligibility criteria please click here.

Other loans and grants

Other notified state aids include Innovate UK’s grants and loans and the Retail, Hospitality and Leisure Grant Fund (RHLGF).  Bounce Back Loans (BBLs) and the Small Business Grants Fund are de minimis state aid and any costs covered by this funding must be excluded from SME R&D claims but can be brought into an RDEC claim.

If you would like more information on these issues, or help preparing an R&D tax relief claim, please contact our R&D Specialists, Carole Brown or Julie Davies-Brown, on the details below: