R&D tax and the impact of loans: what to look out for

In the past year we’ve seen a marked increase in the availability of loans for start-ups that focus on technical innovation. These provide favourable rates and have high acceptance levels, particularly for companies that are pre-revenue. There are also a number of “COVID loans” available, such as the Bounce Back Loan (BBL) and Coronavirus Business Interruption Loan Scheme (CBILS), which has provided some vital cash to keep the lights on during the pandemic.

In most instances, these favourably-termed loans are notified state aid, meaning that there are significant complexities with how they interact with R&D Tax relief. If the loan is deemed to be notified state aid, the same rules apply as if they had received a notified state aid grant. EU regulations require that a single project cannot receive more than one form of notified state aid meaning that, if it is determined that a project has been funded via a notified state aid loan, the project would be ineligible under the SME scheme.

Most of these loans are designed to support working capital commitments rather than specific R&D projects. However, we have seen companies inadvertently impact their R&D tax claim due to how they have allocated the loan. The devil is very much in the detail here and it is important to understand the terms of the loan agreement fully.

Firstly, you need to check to see whether the loan is indeed a notified state aid – something that the loan provider should be able to confirm. If it is, the activities and costs relating to the R&D project should be excluded from the loan application, protecting any tax benefit that would be available under the SME scheme. Instead, check the terms to see if the loan funds can be used for non-R&D expenditure such as marketing or rent, and keep records so that there’s an audit trail to show that there is no-cross over in funding.

Whilst these loans are on favourable terms, they still need to be repaid. It would foolish to restrict the ability to utilise all available relief due to lack of planning, particularly when most of these loans are designed to support the day-to-day running of a business rather than specific R&D projects. With a bit of tax planning it is possible to maximise the overall relief available and get the benefit of both.

If you need any support, or have any questions, contact us and we’ll help.

This post is part of our Entrepreneurial team’s regular series of blogs.

Top tech in 2020: gadgets that have kept me smiling

This post is part of our Entrepreneurial team’s regular series of blogs.

For the Entrepreneurial Tax blog this week I’ve decided to throw a curve ball. Rather than write an informative tax piece, I want to highlight some of the technology that has kept me sane over the past year.

I’ve always been interested in tech and the nature of my job allows me to play with some seriously cool pieces of kit now and again. Below are some of my favourites gizmos in what has been a very “meh” year. Don’t worry, our informative tax pieces on EIS relief, EMI share valuations and R&D Tax will continue in the new year.

(None of the below are sponsored in anyway and if there are any cool pieces of technology that you recommend, drop me a message!)

Ooni Koda Pizza oven – This portable pizza oven allows you to cook authentic, Neapolitan-style pizza in 60 seconds right in your back garden. With its patented design, it can reach 500°c in 10 mins and is a real game changer when it comes to homemade pizzas, making even the most incompetent chef look good.

Höfats Spin – A bioethanol table fire that provides a 500% boost to the mesmerising flame due to its rotating and clear-glass chimney effect. This year we have spent as much time outside as possible, and this light and heat source continues to be used well into the winter months. At the forefront of innovative German design, it’s a win-win in the Philp-Heidl household.

Hoverboard Go Kart – My best friend’s son received this as a Christmas present and to say that I was disappointed that I’m outwith the suggested age and size requirements is an understatement. This adaptation to last year’s Christmas craze converts the hoverboard into a Go-Kart with a unique petal design and auto-balance features. Its two powerful motors can reach up to a speed of 15km/h!

Xbox Series X – Sadly my claim for this on the grounds that it was required for “work” to review Video Game Tax relief claims was, unsurprisingly, unsuccessful. The fastest console ever developed delivers true 4k gaming and still plays some of my 20-year-old video games.

From the Entrepreneurial Tax team we hope that you all have a happy new year!

Welcome to our Research & Development week!

This week we will focus on the work of our Research & Development Tax team, highlighting the work they do for clients; sharing hints, tips and advice on how to utilise R&D Tax relief; and hearing directly from clients themselves on how they have found working with us.

One of the most generous corporation tax reliefs currently available, R&D Tax relief is designed to encourage innovation and increase spending on R&D activities. You can claim back money that you spend on research and development to offset against current or future tax bills.

The team are tax experts first and foremost, and combine inside-out knowledge of R&D with a deep understanding of the wider corporate tax position. Dealing with over a hundred claims a year, we understand HMRC’s language and can advise on the impact a relief claim will have on your tax position, compliance and strategy.

If you are thinking of making a claim for R&D Tax Relief, or not sure if you would qualify, contact David and our team of experts today.