R&D tax relief, COVID-19 and state aid

At ETC Tax, we are being regularly asked about HMRC’s approach to R&D tax relief and how the government’s latest coronavirus funding might have an impact on the eligibility of companies to claim this generous relief.

Processing of R&D claims

Firstly, 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.

HMRC are ensuring that payments in respect of R&D claims reach companies quickly during this period. They have deployed additional resources to help with processing R&D claims and are aiming to process 95% of claims within 28 days.

According to HMRC’s guidance, they have received requests for guidance in respect of filing and amendment dates. It is appreciated that clients are facing operational issues and HMRC will be sympathetic to those facing problems. For example, time limits for R&D claims are set in legislation so that R&D claims should be received by HMRC within 12 months of the statutory filing date of the company’s tax return. If a client is unable to meet this time limit, they should submit the claim as soon as possible and HMRC may be able to accept a late claim.

Going concern and R&D tax relief

The going concern condition is a statutory requirement whereby the claimant company is required to have been a going concern according to its 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. HMRC will be monitoring the impact of COVID-19 on clients’ ability to meet this and other requirements and clients should approach HMRC if there are genuine operational difficulties being encountered.

State aid, R&D tax credits and COVID-19 relief measures

From an R&D tax relief perspective, it is important to note that SME R&D tax credits are a notified State aid and a project cannot be included in an SME R&D claim if it has received another form of notified State aid.

From an R&D tax perspective, when considering the impact of any loan or grant on a company’s R&D claim, the first thing to consider is whether the loan or grant is a notified State aid.

In terms of the COVID-19 funding measures:

• Coronavirus Business Interruption Loan Scheme (CBILS): The government has confirmed that CBILS is a State aid under the European Commission’s new Temporary Framework for COVID-19. If the CBILS relates specifically to the company’s R&D expenditure on a specific project rather than being intended more generally to support the company, receiving these funds may conflict with an SME R&D claim if not carefully planned. If the CBILS is not related to specific R&D project(s), it should not impact the company’s R&D tax credit claim in respect of the project(s). However, it is advised that this is made clear in the application and records are kept in relation to the amounts spent.

• Bounce Back Loan Scheme: This scheme helps small and medium-sized businesses affected by COVID-19 with 100% government-backed loans of up to £50,000. As these loans are also a notified State aid, similar guidance applies as for CBILS. However, as the loan amounts are smaller, they may be classed as “de minimis” State aid. A company cannot claim SME R&D tax credits on R&D expenditure subsidised by de minimis State aid, however there is no impact if the de minimis aid is spent on any other project or business expenditure.

• Future Fund: HMRC has confirmed that the Future Fund, which provides commercial convertible loans, are not State aid. This measure has no effect on a company’s R&D tax credit claim.

• Coronavirus Job Retention Scheme: One of the government’s key support measures is the Coronavirus Job Retention Scheme. If an employee is furloughed, they cannot carry out any work for the business during the furlough period. Therefore, staff costs for any employees who were previously involved in R&D work cannot be included in the R&D claim covering periods of furlough.

Our services

If you have any queries about any of the measures announced as part of Coronavirus business support schemes and their impact on R&D tax relief, then please get in touch with us and we will be happy to assist.