Recent support provided by the government in response to the coronavirus pandemic has provided invaluable assistance to companies in this time of need.
As a result of the economic impact of the coronavirus pandemic, many businesses are already feeling a significant financial impact, particularly with regard to cash flow management.
So, making a research and development (R&D) claim now could help with short-term cash flow and provide a much-needed financial benefit.
However, does the government’s support come with a hidden cost that could impact a company’s ability to claim these R&D tax credits?
Claims for R&D tax credits could be impacted by coronavirus support packages
Much of the support provided by the government – for example, Coronavirus Business Interruption Loans – is classed as ‘notified state aid’. As such, any of this funding a business uses could impact on how much they can claim for research and development (R&D) tax credits.
As much of the support is notified state aid, companies who would otherwise make claims for R&D tax credits under the enhanced small company scheme (SME scheme) could instead be forced to claim the less generous Research and Development Expenditure Credit (RDEC), generally used for larger companies.
Qualifying costs claimed under the SME scheme benefit from an uplift of 130% which is more favourable than the RDEC scheme.
The key factor here will be whether the state aid relates specifically to a firm’s R&D expenditure, or whether the aid is intended to be used more generally to support the company.
If the latter is the case, R&D tax credits will potentially still be available.
Funding received for furloughed staff under the Coronavirus Job Retention Scheme, or Statutory Sick Pay (SSP) is unlikely to impact an R&D claim.
While both of these funds are considered ‘notified state aid’, a condition of being furloughed was that an employee could not undertake any work for their employer during that period. The employee would not therefore have been doing any R&D activity during that period and, as such, funding received for furloughed employees will not relate to R&D. A similar situation arises for SSP.
Take care with other funding received
Businesses should take care with any other funding support they receive.
For example, if a loan was received under the Coronavirus Business Interruption Loan Scheme and used to fund employees’ salaries who, at that time, were undertaking R&D activities, any claim for R&D tax credits under the SME scheme could be impacted.
It is likely that companies have spent less time on R&D activities during this period as more focus may have been placed on survival rather than development.
However, care will need to be taken when identifying qualifying costs to ensure that any government support received does not have an unintended knock-on effect on any R&D tax credit claim.
Due to the speed in which some of these support packages were introduced, the impact on R&D claims could be an unintended consequence. We are waiting to see if HMRC issue any guidance to address this potential impact and will share this once received.
Get in touch
If you have any questions about R&D tax credits or issues concerning state aid, please get in touch with your usual RPG contact or call us on 0161 608 0000.
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