HMRC Update – R&D Tax Relief & COVID-19

Author

Jerry Giles

Jerry is an experienced Tax Adviser specialising in advising OMB’s on succession planning and business structures. Jerry also has a particular interest in advising individuals on IHT planning.

HMRC has issued an update on R&D in the light of COVID-19

On 6th April 2020 HMRC issued an update on R&D in the light of COVID-19/ Coronavirus.

Here at ETC Tax, we have been asked repeatedly in the weeks since the lockdown what HMRC are doing with the R&D tax relief system and how the recent state aid that has been provided impacts on the tax reliefs themselves.

We are pleased to be able to share with you all the following HMRC R&D update. HMRC have made a point to say that processing claims is a priority. That may be an obvious point to make but perhaps they also see the importance of helping qualifying business’s cash flow at this difficult time.

HMRC state they are receiving a high volume of questions about the R&D reliefs in the light of the current COVID-19 pandemic. They don’t have all the answers at the moment but will provide further information as soon as possible. Here are the best bits of the update:

R&D Returns & Payments

First, we appreciate there are concerns relating to the processing of R&D claims and in particular claims for payment and whether these can be accelerated.

At a time of pressure on HMRC operational resources, our first priority is to maintain our published aim of clearing 95% of SME tax credit claims within 28 days and we have implemented contingency plans to support this, including applying extra resource to the work. Currently we are meeting this aim. We will give regular updates.

We have received requests for guidance in respect of filing or amendment dates. We appreciate the operational difficulties customers are facing and we will be sympathetic to those facing problems. For example, time limits for claim are set in legislation so that claims for R&D payable tax credit and Research & Development Expenditure Tax Credit should be received by HMRC within 12 months of the statutory filing date of the company’s tax return. If a customer is unable to meet that time limit, they should submit the claim as soon as possible and we may be able to accept a late claim. Statement of Practice 5/01 explains how HMRC will decide whether each claim will be accepted. This can be found here.

We have also been asked whether claims will be paid in full even where the business has other liabilities owing to HMRC. In the case of Research and Development Expenditure Credit [RDEC], HMRC has no discretion, under the current legislation, to do this. For claims to payable SME credit, we are considering the position.

Can the “Going concern” requirement in the SME scheme be set aside?

The going concern condition is a statutory requirement so it is one that HMRC cannot overlook. The condition requires the claimant company to have been a going concern according to the last published accounts. In many cases these will have been prepared before the effects of COVID-19 so that there should not be any issue caused by the going concern requirement. We will be monitoring the impact of COVID-19 on customers’ ability to meet this and other requirements and you should approach us if it is causing genuine operational difficulty.

Are new Government support schemes introduced in response to coronavirus, such as CBILs, State aids or subsidies? Will they affect a company’s ability to make a claim under the SME scheme?

The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts. We will be monitoring the application of this rule and welcome feedback.

Budget 2020 announcements

Following the 2020 Budget earlier this month, the following measures were announced which relate to R&D reliefs.

PAYE Cap

Following consultation last year, the introduction of the PAYE cap on the payable tax credit in the SME R&D schemes will be delayed until 1 April 2021. This allows time for further consultation on the design of the cap. A consultation document has been published and is available as is the summary of responses to the consultation held last year.

Given the current circumstances, we are considering how to engage with stakeholders during the consultation and will keep you informed. Nonetheless, we welcome written responses by the closing date of 28 May 2020. There are no plans to extend this date at present.

Expanding Scope of Qualifying Costs

The government will also consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. The consultation will be published in due course.

All announcements from Budget 2020, including the above can be found on the HMRC.gov website.

Off Payroll

You may be aware the Government announced on 17th March 2020 that it was delaying the introduction of the off payroll working reform from April 2020 to April 2021. As a result, the consequential amendments in relation to R&D legislation will not be made until April 2021.

As we continue to navigate these challenges and unprecedented times, we will endeavour to keep you updated on developments.

We would like to take this opportunity to thank you for your patience and cooperation.

COVID-19 support for business

For more information regarding the wider measures set out by the Chancellor to help businesses through this period of disruption caused by COVID-19 please see: COVID 19

If any of our clients want to discuss this update with us, please feel free to contact us today. We are here to help.

Next Steps

If you have any queries about any of the measures announced as part of Coronavirus business support then please visit the Government’s pages or get in touch with us and we will be happy to assist.

Who are we?

Due to demand for high quality specialist tax advice ETC Tax has seen rapid growth over the past few years. Today, our tax team is made up of a group of highly experienced Chartered Tax Advisers who between us have amassed a wealth of tax experience, mostly gained at Big 4 and Top Ten accountancy firms. Supported ably by a team of passionate Tax Advisers and committed support staff we enjoy working together to achieve the best possible outcome for our clients, priding ourselves on delivering complex tax advice in a commercial and ‘user friendly’ way.

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