How COVID-19 reliefs impact Research & Development Tax claims

The Chiene + Tait team has been inundated with queries regarding the various new COVID-19 reliefs that are available for businesses. Whilst cash has always been ‘king’ for businesses, there has never been a more important time to have sufficient reserves.

Research & Development (R&D) Tax Relief has been the ‘go-to’ cash relief for innovative companies since 2002. There are complexities as to how R&D Tax is interlinked with the new COVID-19 reliefs, which should be considered before diving into making claims for the various reliefs available. Below are a few frequently asked questions we have received from clients in relation to the reliefs:

Should I claim under the Coronavirus Business Interruption Loan Scheme (CBILS)?

Yes, but watch out for traps. EU regulations require that no project, as opposed to no company, can receive more than one notified State Aid. As the SME R&D Tax scheme and the CBILS have both been notified as State Aids, there could be an issue regarding allocation of costs, particularly if the CBILS relates specifically to R&D expenditure, rather than being used more generally to support the company as it is intended. It is vital to watch out for this when drafting CBILS applications. If it is not an option split out the costs, all isn’t lost. An R&D claim would still be able to be made under the RDEC scheme, albeit at a lower level of relief.

Should I use a COVID-specific grant to fund my R&D project?

Since the start of the pandemic, we have seen a significant increase in the number of grants available for R&D projects. In some instances, these grants are deemed to be notified State Aid, meaning that the full R&D project would be ineligible under the SME scheme. A claim can, thereafter, only be made under the less-beneficial RDEC scheme. It is worth noting that, once a project is ineligible for the SME scheme, that’s it. The project would continue to be ineligible for the entire length of the project. It’s therefore important not to just think about the cash benefit this year, but also years 2 and 3.

Where a grant isn’t notified, it will likely be de minimis. Receiving de-minimis aid will still impact your R&D claim but not to the same extent as if you received notified State Aid. All costs subsidised would be ineligible under the SME scheme, however, an SME claim can still be made for the costs not covered by the grant. This essentially means that 2 claims can be made, one under the SME scheme for the non-subsidised costs, while a RDEC claim can be made for the subsidised costs.

It’s not always obvious how a grant should be treated, and it is an area where the devil is very much in the detail. Make sure that you seek advice so that you don’t accidently limit the cash relief available.

What happens if I furlough staff?

When an employee is furloughed, they will not be carrying out any work; therefore, they will not be directly and actively engaged in R&D activities. This will likely impact next year’s claim rather than any immediate claim for obvious reasons, however, it is something to consider. This will not affect your ability to claim eligible projects, once the employee has returned, the R&D project can re-start.

During the pandemic, it is vital that you claim for all relief that you are eligible for. If you have a query about what your business can claim contact our team today at covid@chiene.co.uk.