The majority of businesses have had to make big changes to the way they operate over the past year during the Covid-19 pandemic, with many turning to government grants and subsidies for much-needed financial support. As you might imagine, changes to your client’s business model as well as receiving support as a result of Covid-19 can impact their R&D tax credit claim. This manifests in relation to claims eligibility as well as the amount that you can claim.
Appropriately, it has been businesses most invested in R&D that have had to turn to government funding to stay afloat in recent times. We’re here to tell you what to look out for so you and your client don’t get caught out and more importantly, how you can maximise your claim.
What support has the government been offering for Covid-19-impacted businesses?
There are many ways for businesses to access Covid funding in the UK. In April 2021, Grantfinder reported that more than £330Bn in guarantees and loans were confirmed to be available by the government. Examples include the Bounce Back Loan (BBL), Job Support Scheme (JSS), Coronavirus Job Retention Scheme (CJRS) and Coronavirus Business Interruption Loan Scheme (CBILS).
- Coronavirus Job Retention Scheme: Introduced in March, the CJRS protects employees’ jobs by funding ‘furlough’ payments. Grant payments can be claimed to cover up to 80% of workers’ monthly wages while they are on a leave of absence.
- Coronavirus Business Interruption Loan Scheme: This scheme allows SMEs access to a government loan of up to £5m. As an added bonus, any and all interest payments are also covered by the government. This includes lender associated payments for up to twelve months as an initial period. The scheme is delivered through the British Business Bank.
- Bounce Back Loans: Made available on 4th of May 2020, Bounce Back Loans are also available to SMEs. These guarantee access of up to £50,000 from the government.
For larger businesses, there’s the Bank of England’s Covid Corporate Financing Facility. As long as the business can prove they were performing well before the pandemic, the Bank of England will buy short-term corporate debt, known as commercial paper. This allows businesses experiencing disrupted cash flow to raise working capital.
Does receiving Covid-19 grants/subsidies compromise securing R&D tax credits?
Well, the answer is – it depends. A company might not qualify for R&D tax credit if they have received grants or subsidies (link to blog 1), especially if it’s for the project they are claiming. However, there are ways to maximise and optimise your client’s claims if you are fully informed and know what to look out for. This will help your client to achieve the best of both worlds.
- Coronavirus Job Retention Scheme: As alluded to above, these workers mustn’t be working. To qualify for R&D tax credits, all furloughed employees must have ceased work completely. This means HMRC can guarantee these workers are not contributing to R&D projects. As long as you follow this condition, any CJRS support will not affect R&D tax credit claims. There’s nothing to worry about if the business has furloughed employees but hasn’t received any CJRS. HMRC will consider that they aren’t involved in the relevant R&D.
- Coronavirus Business Interruption Loan Scheme: CBILS is classified as notified state aid, i.e. aid which has been approved by the European Commission. This means CIBLs will not affect a company’s R&D claims so long as the money is not spent on an area related to the R&D claim. If it is, then the projects won’t qualify under schemes designed for SMEs. The total loan money used in the qualifying expenditure will then have to be deducted from the claim. However, the business could still claim under the government’s RDEC scheme.
- Bounce Back Loans: While also classified as state aid, Bounce Back Loans are also ‘de minimis’ forms of aid. This means they can affect future R&D tax credit claims, even though businesses use them for all manner of financial support. As these loans are often small in size, they do not have to be declared to the European Commission.
- Aid from the Corporate Financing Facility: This support won’t conflict with R&D tax credit claims. This is because it reduces outstanding business debt as opposed to an injection of money from an outside source. It is therefore an aspect that sets this Covid funding apart from traditional loans.
These last two examples show the complexities that can arise from receiving Covid funding. Every company’s situation will differ, so getting professional guidance is advised.
What to do with this information
Businesses across the board are still recovering from Covid-19. It’s going to be very likely that your clients will have accessed one or more of these support schemes. First is to dispel any stigma in getting financial help. Second is to create an open conversation about their finances with no details spared. How they have used the financial support is something to bear in mind when looking at their books, particularly when considering where the loan money is being spent. This is important because R&D tax credits are themselves a form of support for businesses now.
To find out more visit: R&D Tax Credits Made.Simplr