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The R&D Tax Credits scheme continues to be a valuable funding mechanism alongside the broad range of COVID-19 government funding measures recently put in place. The relief incentivises companies to innovate and grow by rewarding them with a generous cash injection.
But how do you know if claiming any form of government financial assistance during the pandemic will have a bearing on any subsequent R&D Tax Credit claims? Here we take a look.
The Coronavirus Business Interruption Loan Scheme (CBILS) allows businesses affected by COVID-19 to claim loans of up to £5 million interest-free for 12 months. They are administered through the British Business Bank.
Being in receipt of a CBILS loan doesn’t automatically bar a company from claiming R&D Tax Credits. However it can lessen the value of a claim if a company has to use the less generous RDEC scheme due to state aid rules. At this point, you may find our blog R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC? useful.
If a company receives any financial aid which is categorised as ‘Notified State Aid’ then it won’t be able to claim R&D Tax Credits under the SME branch of the scheme at all. This is because the SME scheme itself is a form of NSA, and only one type of NSA is allowed per project. We cover this topic in our recent blog: 8 Common Mistakes Companies Make When Claiming R&D Tax Credits.
HMRC have confirmed that CBILS is classified as ‘fully NSA’. It has also said that where the CBILS relates to the company’s R&D project expenditure specifically (rather than simply spent on keeping the company afloat) future claims using the SME scheme could be at risk. This may have serious financial implications not just over the coming year or two but in the longer term as well.
When it comes to CBILs it’s about deciding whether it’s better to have the cash now or opt against it in favour of a higher R&D tax award via the SME scheme later. It depends on a company’s cash flow and whether it can afford to wait. This is not always a straight-forward decision which is why it’s strongly recommended that before you begin a claim for R&D Tax Credits you get in contact with an experienced, specialist R&D tax relief consultancy like Myriad Associates. This is so we can help you work out exactly what you can claim for and advise you on the best course of action.
There are a number of government schemes offered to help struggling businesses during the coronavirus outbreak. The ones below specifically have no impact on your R&D Tax Credits claim should you wish to make one:
Coronavirus Job Retention Scheme - The Coronavirus Job Retention Scheme (CJRS) has now closed for new applicants, but if you have already used it to furlough your staff then it’s still fine to claim R&D Tax Credits. This is because the scheme acts as a wage subsidy for the purposes of keeping the company going day to day if COVID-19 has brought financial hardship. All companies have been able to benefit, including PAYE-operating, non-UK companies employing UK staff.
Business rates relief - A business rates holiday has been available for all retail, hospitality and leisure firms since its launch back in April. It means that companies in these sectors can benefit from a 12-month business rates payment break between April 2020 and April 2021. Additionally, retail businesses can receive cash grants of up to £25,000.
See more details on the Government website.
Tax payment deferrals - This includes Time to Pay arrangements and VAT payment deferrals which are outside of state aid rules because they are open to all businesses and aren’t selective. If you need further explanation please go get in touch.
The government's coronavirus Bounce Back Loans scheme opened on 4th May to offer the country’s smallest businesses guaranteed access to loans of up to £50,000. The loans are 100% backed by government and are in the recipient’s account within 24 hours.
Bounce Back Loans can be claimed by companies that have a liability for Corporation Tax, but they can also be claimed by start-ups, freelancers and sole traders. However, even though Corporation Tax paying companies can pay a freelancer for a piece of R&D work and claim the cost back through R&D Tax Credits, this doesn’t work in reverse. What we mean is that if a small enterprise like a sole trader or freelancing business isn’t liable for Corporation Tax, then it also can’t avail of R&D Tax Credits so whether or not it received a Bounce Back Loan is academic.
Bounce Back Loans have been classified as ‘notified state aid’. This means that if companies use the cash resulting from a loan to fund R&D work, RDEC rules will apply as we discussed earlier in this article. However, there are still some grey areas here and there is potentially the chance for HMRC to consider claims on a case by case basis. Again, this is something we can advise you on.
No matter whether you’re a brand new start up or a large, well-established enterprise with multiple sites, we’re here to get you the R&D Tax Credits you deserve.
Myriad Associates is a highly specialised team of R&D accountants and advisors who will steer you around the pitfalls and fully optimise you claim quickly and efficiently. Call us now on 0207 118 6045 or send us a message.