R&D Tax and CBILS

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The Government has provided some really beneficial financial measures for businesses during the COVID 19 pandemic.

However, by taking up Government help, you may drastically reduce the amount of R&D tax relief you may receive.

In some circumstances, this may have a catastrophic effect on R&D tax funding. 

There are ways to reduce the impact and protect your future R&D tax claims.

Stick around and learn more.

On today’s show, I’ll give you information on the impact of CBILS and the other financial measures on R&D tax.

Introduction

We have had questions relating to R&D tax relief and the impact of the government financial support during the coronavirus outbreak. In this episode we will cover the implications of these financial measures and R&D tax relief. 

Lets go!

Welcome to The R&D Tax Show where we help accountants, tax advisers and their clients claim R&D tax relief. 

It is very important to understand the implications of receiving financial aid during the Covid-19 outbreak. These financial measures can have an impact on the companies claiming R&D tax relief under the SME scheme. 

State Aid

We will first cover state aid. 

There are two types of R&D tax relief, the SME scheme and RDEC scheme. 

The SME scheme is more generous as companies can recoup approximately 25% of its costs, whereas under the RDEC scheme a company can claim approximately 10.5% of its costs. 

Due to the SME scheme being generous, the EU treats it as notified state aid under EU competition rules. 

Why does this matter you ask? 

Well, if a claimant receives another form of notified state aid for a project then the claimant cannot claim under the SME tax scheme for the same project. 

In short, only one notified state aid can be claimed per project. If a company does receive notified state aid, it can still claim R&D tax relief however, it will be under the less generous RDEC scheme. 

As a result of the outbreak the government has provided financial support to companies. 

The following types are treated as notified state aid: 

  • Coronavirus business Interruption Loan Scheme 
  • Bounceback Loan Scheme 
  • Small Business Grants Fund
  • Retail, Hospitality and Leisure Grant Fund 

We have received more inquiries into grants and loans from Innovative UK. These are generally notified state aid.

The Future Fund is a support mechanism where the government offers loans that convert into equity and the company has to match that funding using its own. This type of funding has no effect on R&D tax relief. 

Minimise the effect of notified state aid

If you do plan to receive notified state aid, to reduce the impact on R&D tax relief the amounts received should not be spent on qualifying R&D costs such as staff involved with R&D, materials, software, subcontractors or utilities. 

Instead the notified state aid should be used on none R&D costs such as rent, staff excluded from R&D, production costs, insurance, cleaning services, legal fees, professional services and marketing. The coronavirus financial support is however provided to businesses for production purposes and not for R&D. 

In the application process, it is sensible to identify the none R&D costs that you intend to pay using the financial assistance. Once you have received the notified state aid it is important to develop and maintain an audit trail on money spent. 

If possible try to create a separate bank account to hold the notified state aid and pay your none R&D costs from this account. 

This is beneficial if HMRC come back with any questions. 

De Minimis Aid

In addition to the availability of notified state aid, de minimis aid can also be received to provide assistance to businesses. Both the bounceback loan and the small business grants fund may be de minimis aid. 

De minimis aid cannot exceed €200,000 over three years for a project. You have to aggregate all the types of de minimis aid from different sources to establish whether the €200,000 limit has been exceeded. 

Any de minimis aid used for an R&D project can only be claimed under the RDEC scheme. However, any of the companies own funds incurred on that same R&D project, these costs can still be claimed under the SME scheme. 

When you apply for these grants you should request details from your fund provider and ask them if you are receiving notified state aid or de minimis aid. 

Furlough 

If you have furloughed some of your staff then they have not been working during the period they have been furloughed. As they have not worked during that period, you cannot claim their staff costs on R&D tax. 

This will not affect claims now but later on it will mean less money has been invested on staff during that period of time so you will receive less amounts back. 

Other financial aid

If you owe money to HMRC through pay as you earn or NIC or VAT then any R&D tax relief you receive might be offset against that. This will also include any time to pay arrangements, which have been popular over the last few months since the outbreak began. 

However, any VAT deferred using the VAT deferral scheme, which was introduced back in March 2020, this will not have an impact on any R&D tax refunds or tax credits. 

From an R&D perspective, it is more beneficial to fall into the SME scheme, however from a commercial perspective receiving grants and loans could outweigh the benefits of receiving the R&D tax relief. 

Example

If a company receives R&D tax relief of £60,000 a year for three years, the total benefits over the three years will be £180,000. 

However, if you claim a grant of £150,000 that is notified state aid and then you receive £20,000 per year over those three years. 

The total benefit would give you £210,000. 

Each company’s scenario is different. If you want to discuss how any of the financial aid will affect your R&D claim just get in touch a

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Tehsin Khan

Tehsin Khan

Tehsin is an experienced tax professional with 12 years of experience helping companies and individuals save money. He has worked for the most reputable tax firms in the country before setting up GrowthPad. In his spare time, Tehsin contributes to national tax publications and plays the odd game of football.

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