During the Covid-19 pandemic, many businesses received support from the Government, whether this was through furloughing employees and making a claim through the Coronavirus Job Retention Scheme (CJRS) or applying for a Coronavirus Business Interruption Loan (CBILS) or Bounce Back Loan (BBL). But did you know that if you claimed under one of these schemes, your upcoming R&D tax claim may be affected? Below, PM+M’s research and development tax manager, Jon Connor, explains why and provides a few insights to help you prepare your claim.
Can I claim R&D tax relief for furloughed employees?
Businesses should be aware that salary costs paid while employees were on furlough cannot be included in an R&D tax relief claim. During CJRS claim periods, furloughed employees should not have been working for the business, therefore, they cannot reasonably be regarded as being actively engaged in relevant R&D activities during this time.
The excluded costs will include the employee’s gross salary for the furlough period, NIC and pension contributions – even if these costs were not fully covered by Government funding i.e. if the employer opted to ‘top-up’ employee wages by up to 20%.
Additionally, from 1 July 2020, it was possible to be a ‘flexibly furloughed’ employee. This allowed businesses to bring back employees on a part-time basis. In these cases, if the business was claiming via CJRS, employees should have ceased all work in relation to their employment from which they were furloughed. Therefore, costs relating to the furloughed time should be excluded from your staffing costs calculations.
During periods of flexi-furlough, the only claimable staffing costs relate to days where the employee is engaged in the business, working directly or indirectly on qualifying R&D activities.
Many companies may claim costs associated with furlough periods without knowingly doing so. This is an area where we can assist with your claim preparation to ensure claims are maximised, but not overstated, in line with current HMRC guidance.
Coronavirus Business Interruption Loan scheme (CBILS)
The Coronavirus Business Interruption Loan scheme (CBILS), which ended on 31 March 2021, provided a lifeline to many businesses during the pandemic – over £20bn worth of facilities were approved since the scheme opened in April 2020.
As CBILS is classified as notified state aid, if you claimed a loan and the money was spent in an area of the business that is not related to your R&D claim, then your R&D projects will not be affected by this loan.
However, R&D projects which have been funded by CBILS will not qualify under the SME scheme. They could, on the other hand, be claimable under the RDEC (Research and Development Expenditure Credits) scheme.
We would recommend seeking professional advice regarding your specific circumstances if you have taken advantage of any Government support that has enabled further investment in R&D activities.
Bounce Back Loans (BBL)
The Bounce Back Loan scheme (BBL), which also ended on 31 March 2021, was designed to enable businesses to access finance quickly during the coronavirus pandemic. With Government guaranteed loans available up to £50,000, over 1.5 million businesses took advantage of the scheme since its opening on 4 May 2020.
Similar to CBILS, Bounce Back Loans are also classed as fully notified state aid, although the BBL scheme may come under the de minimis exemption (read more on the de minimis exemption here). In theory, this means that businesses who have took advantage of BBL support could see an effect on any ensuing claims for R&D tax credits. However, as the support is designed to offer general financial support to businesses, and not specifically to fund an R&D project, it is thought that R&D claims should not actually be impacted – this is not always clear cut and HMRC have stated that they will consider each case separately and the onus is on the individual to ensure records are held to support R&D tax support claims.
Speak to an adviser
The pandemic has been a confusing, stressful time for many businesses and the rules regarding Government support measures and R&D tax credits are becoming more complex.
Please be aware that there may be penalties for overstating expenditure on your R&D tax relief claim – speaking to a professional adviser for support with preparing your claim can help you avoid this. If you have claimed any Covid-19 Government funding and are unsure of how this could affect your eligibility to claim R&D tax credits, please don’t hesitate to contact me to discuss this in more detail by clicking the button below.